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THE FOUNDATION OF SERVICES MARKETING................................................................... 3 BANK MARKETING .................................................................................................................. 21 TOURISM MARKETING............................................................................................................ 31 HOSPITAL MARKETING .......................................................................................................... 41 INSURANCE MARKETING ....................................................................................................... 51 MUTUAL FUND MARKETING................................................................................................. 65 TELECOMMUNICATIONS SERVICES .................................................................................... 73 COURIER SERVICES ................................................................................................................. 80 Service Sector Management: BBA-III. -1- AUTOMOBILE SERVICES ........................................................................................................ 89 Service Sector Management: BBA-III. -2- THE FOUNDATION OF SERVICES MARKETING Introduction: What is a Service? In economics and marketing, a service is the non-material equivalent of a good. Service provision has been defined as an economic activity that does not result in ownership, and this is what differentiates it from providing physical goods. It is claimed to be a process that creates benefits by facilitating either a change in customers, a change in their physical possessions, or a change in their intangible assets. Dictionary definitions of "Intangible": 1. Lacking substance or reality; incapable of being touched or seen 2. Incapable of being perceived by the senses especially the sense of touch 3. (Of especially business assets) not having physical substance or intrinsic productive value By supplying some level of skill, ingenuity, and experience, providers of a service participate in an economy without the restrictions of carrying stock (inventory) or the need to concern themselves with bulky raw materials. On the other hand, their investment in expertise does require marketing and upgrading in the face of competition that has equally few physical restrictions. Key attributes of Services Services can be described in terms of their main attributes. Intangibility - They cannot be seen, handled, smelled, etc. There is no need for storage. Because services are difficult to conceptualize, marketing them requires creative visualization to effectively evoke a concrete image in the customer's mind. From the customer's point of view, this attribute makes it difficult to evaluate or compare services prior to experiencing the service. Perishability - Unsold service time is "lost", that is, it cannot be regained. It is a lost economic opportunity. For example a doctor who is booked for only two hours a day cannot later work those hours— she has lost her economic opportunity. Other service examples are airplane seats (once the plane departs, those empty seats cannot be sold), and movie tickets (sales end at a certain point). Lack of transportability - Services tend to be consumed at the point of "production" (although this doesn't apply to outsourced business services). Lack of homogeneity - Services are typically modified for each client or each new situation (customized). Mass production of services is very difficult. This can be seen as a problem of inconsistent quality. Both inputs and outputs to the processes involved providing services are highly variable, as are the relationships between these processes, making it difficult to maintain consistent quality. Labour intensity - Services usually involve considerable human activity, rather than a precisely determined process. Human resource management is important. The human factor is often the key success factor in service industries. It is difficult to achieve economies of scale or gain dominant market share. Demand fluctuations - It can be difficult to forecast demand (which is also true of many goods). Demand can vary by season, time of day, business cycle, etc. Buyer involvement - Most service provision requires a high degree of interaction between client and service provider. Service Sector Management: BBA-III. -3- Client-Based Relationships - Is based on creating long-term business relationships. Accountants, lawyers, and financial advisers maintain long-term relationships with their clients for decades. These repeat consumers refer friends and family, helping to create a client-based relationship. Service delivery The delivery of a service typically involves five factors: The service providers (e.g. the people) Equipment used to provide the service (e.g. vehicles, computers) The physical facilities (e.g. buildings, parking, waiting rooms) The client Other customers at the service delivery location Customer contact The service encounter is defined as all activities involved in the service delivery process. Some service managers use the term "moment of truth" to indicate that defining point in a specific service encounter where interactions are most intense. Many business theorists view service provision as a performance or act. The location of the service delivery is referred to as the stage and the objects that facilitate the service process are called props. A script is a sequence of behaviours followed by all those involved, including the client(s). Some service dramas are tightly scripted, others are more ad lib. Role congruence occurs when each actor follows a script that harmonizes with the roles played by the other actors. In some service industries, especially health care, dispute resolution, and social services, a popular concept is the idea of the caseload, which refers to the total number of patients, clients, litigants, or claimants that a given employee is presently responsible for. On a daily basis, in all those fields, employees must balance the needs of any individual case against the needs of all other current cases as well as their own personal needs. The service sector – the tertiary sector The three-sector hypothesis is an economic theory that divides economies into three sectors of activity: Extraction of raw materials (primary) Manufacturing (secondary) Service Sector Management: BBA-III. -4- Services (tertiary). According to the theory the main focus of an economy's activity shifts from the primary, through the secondary and finally to the tertiary sector. The process is essentially positive, and relates to increase in quality of life, social security, blossoming of education and culture, higher level of qualifications, humanisation of work, and avoidance of unemployment. Countries with a low per capita income are in an early state of development; the main part of their national income is achieved through production in the primary sector. Countries in a more advanced state of development, with a medium national income, generate their income mostly in the secondary sector. In highly developed countries with a high income, the tertiary sector dominates the total output of the economy. Service Sector is also known as the tertiary sector of industry is one of the three main industrial categories of a developed economy, the others being the secondary industry (manufacturing), and primary industry (extraction such as mining, agriculture and fishing). Services are defined in conventional economic literature as "intangible goods". According to some economists, the service sector tends to be wealth consuming, whereas manufacturing is wealth producing. Sir Keith Joseph in his lecture Monetarism Is Not Enough, contrasted wealth producing sectors in an economy such as manufacturing with the service sector which tends to be a wealth consuming sector. He contended that an economy declines as its wealth producing sector begins to shrink. The tertiary sector of industry involves the provision of services to businesses as well as final consumers. Services may involve the transport, distribution and sale of goods from producer to a consumer as may happen in wholesaling and retailing, or may involve the provision of a service, such as in pest control or entertainment. Goods may be transformed in the process of providing a service, as happens in the restaurant industry. However, the focus is on people interacting with people and serving the customer rather than transforming physical goods. Since the 1960s, there has been a substantial shift from the other two industry sectors to the Tertiary Sector in industrialised countries. The service sector consists of the "soft" parts of the economy such as insurance, government, tourism, banking, retail and education. In soft sector employment, people use time to deploy knowledge assets, collaboration assets, and process-engagement to create productivity (effectiveness), performance improvement potential (potential) and sustainability. Typically the output of this time is content (information), service, attention, advice, experiences, and/or discussion (also known as "intangible goods"). Other examples of service sector employment include: Franchising Restaurants Retailing Entertainment, including the record industry, music industry, radio, television and movies. News media Leisure industry/hotels Consulting Transport Healthcare/hospitals Public utilities are often considered part of the tertiary sector as they provide services to people, while creating the utility's infrastructure is often considered part of the secondary sector, even though the same business may be involved in both aspects of the operation. Services Marketing A wide variety of activities labeled as services are practised by both profit-orientated organizations and non-profit orientated organizations. The success of these organizations depends on delivering excellent service quality and creating value to customers. Defining services is therefore not a simplistic task. Over the years service marketing literature has provided readers with an assortment of service definitions. Service Sector Management: BBA-III. -5- According to Irons, pure services are intangible but they do usually add value to, or make available, a tangible product. They do not result in transfer of ownership and may leave only memories. Zeithaml and Bitner claim that in the simplest terms services are deeds, processes, and performances. Their broader definition states that services include all economic activities whose output is not a physical product, is generally consumed at the time it is produced, and provides added value in forms that are essentially intangible concerns of the purchaser. Kotler defines service as an activity that one party offers another that is essential intangible and does not result in the ownership of anything. Its production may or may not be tied to a physical product. Grönroos identifies a service as an activity or series of activities of a more or less intangible nature that normally, but not necessarily, takes place in interaction between the customer and service employees and/or physical resources or goods and/or systems of the service provider, which are provided as solutions to customer problems. The conclusion derived from the above definition is that services deal with intangible components. The purchase of services does not necessarily result in physical transfer or ownership but still creates a bundle of benefits during or after the service interaction or experience. Distinguishing between the tangible and intangible components of a service is extremely difficult. Therefore, separating the core service from the augmented service helps to simplify this task. The core service represents the fundamental benefits the service provide to satisfy customers’ needs. The augmented service incorporates the core service in addition to the tangible elements and all additional benefits of the service employed to satisfy customers’ needs. The core services are mostly intangible because of their lack of physical attributes, while augmented services provide the customer with the impression of the services’ tangibility component, because it can be seen, touched, and transferred to the customer. Characteristics of Services/Salient features The inherent differences that exist between goods and services result in unique management challenges for service organizations. Services possess five unique characteristics; namely intangibility, perishability, inseparability, variability, and lack of ownership, that differentiate them from goods. These characteristics create distinctive challenges for service marketers in attracting new customers, and keeping existing customers. These characteristics are explained in the ensuing sections. Intangibility Intangibility is the dominant characteristic of services and is defined as the lack of tangible assets that can be seen, touched or smelled prior to purchase. However, services vary in the degree to which they are intangible and most services include some kind of tangible element. The tangibility spectrum places highly tangible offerings at one end of the continuum and intangible services on the opposite end of the continuum. It is clear that very few offerings are totally tangible or intangible. The intangible characteristic of services present service marketers with several problems. The lack of physical attributes of services makes it difficult to display or communicate services readily and easily to customers. Customers often find it mentally difficult to grasp the service performance or experience without tangible evidence, which makes it difficult to diffuse. Services that rely intensely on customer involvement, present cost calculation difficulties that lead to price setting inadequacies for service marketers. Service Sector Management: BBA-III. -6- The Tangibility spectrum These problems can, to a certain extent, be successfully resolved by reducing the intangibility of service offerings through stressing the tangibility components of offerings, stimulating word of mouth communication, creating a strong corporate communicate with customers, and using unique attributable cost and perceived value pricing. Service providers must always take into account the fact that customers use the tangible elements, such as the people who provide the service, the environment in which the service encounter takes place, the equipment used, and the price of the offering, to make assumptions about the quality of the service and to compare it to the offerings of other service providers. Variability Variability refers to the unwanted or random variable levels of service quality customers receive when they support an organization. The primary reason for variability is the human element present in the service process, accordingly sustaining the statement of Kotler, that the quality of service depends on the service provider. Because humans normally perform services, the chance of two service performances being the same is highly unlikely. Different service employees will perform the same service process differently and the same service employee will provide a varying service under different circumstances or at different times. Nevertheless, the recipients of the service are also human, with their own unique demands and expectations of the service performance. Service marketers find it difficult to control the quality of the service performances because it is dependant on fallible employees as one of the main inputs The reliance on people’s performances causes standardisation service processes to be almost impossible. The intentional or unintentional customisation of service processes and output performances by service employees for individual customers makes promotion of services very difficult. Customers in general perceive the person who delivers the service “as the service”. As a result, service providers have the ability to alter the outcome and level of customer satisfaction. Service marketers are confronted with the challenge of controlling service quality because consistent quality service performances play a vital role in the survival of organizations. Service quality is profoundly dependent on the ability of customers to articulate their needs and level of service demands. Equally, service quality depends on the ability, and willingness of the service provider to satisfy customers’ needs and demands. Organizations can put into practice service quality control and measurements by recruiting service-orientated employees and training them to provide a service that will meet or exceed customers’ expectations. Service Sector Management: BBA-III. -7- Inseparability Inseparability refers to the simultaneous production and consumption of a service, thus it is often difficult to separate the service provider from the service performance. Customers are normally present at and during the service performance and play an active role in the service production process. The quality of the service performance is dependent on the interaction between the service provider and the customer. The customer’s involvement in the production process of the service can influence the outcome of the service positively or negatively. Service marketers must recognize that the roles customers play in the service production process influence the service outcome, not only for themselves but also for other customers. The inter-client interaction between customers also plays an integral part in the outcome of service experiences Service organizations must acknowledge the influential role that service employees play in service processes. The service employees or the service providers are often seen as the service itself. The inseparability of production and consumption means that very few service offerings can be mass-produced, but almost every service offering can be customised to customers’ needs and demands. Customisation is to the advantage of service organizations, because customers use the degree of customisation of service offerings to measure the quality of services. Perishability Perishability is the inability of a service to be inventoried or stored. This characteristic is of major concern to service marketers because it inevitably leads to supply and demand problems. The capacity lost in services can never be regained and to equalise supply and demand is a difficult task. These distinct service problems present service marketers with the challenge of setting up good recovery strategies for service process failures. Research has shown that resolving customer problems effectively has a powerful impact on customer satisfaction and loyalty. The perishability characteristic of services creates the opportunity for the organization to develop creative planning for capacity utilization and management of future demand. Ownership Ownership is the last characteristic of services that distinguish it from goods. Customers receive only the right to a service process when they purchase it. Subsequently it is assumed that payment for services buys only the right of access to a service and not physical transfer of ownership to customers. Customers view the lack of ownership of a service as a perceived risk. Firstly they are presented with the uncertainty as to whether the right service has been obtained and secondly with the uncertainty about the consequences of the service purchase. Since services are produced and consumed simultaneously, the option of “returning” a service does not exist. The inability to own a service also has direct implications on the distribution of services. Service customers usually only have use or access to a facility where a service is performed. Kotler suggests that services call for special marketing solutions. The characteristics of services create problems for service marketers that are not experienced by product marketers. If these problems are not carefully managed, organizations may experience negative influences on service quality that will ultimately reduce customer retention and organization profits In this regard, Zeithaml and Bitner have proposed a services marketing triangle that will be discussed in the next section. The services marketing triangle Service marketers face marketing challenges, which revolve around issues such as: • Understanding customers’ needs and expectations of services, • Making services tangible to customers and • Keeping and dealing with promises made to the customers The services marketing triangle shown in the below figure helps service marketers to address these challenges. The three points of the service triangle represent the organization, the customers, and the employees. Between each of the three points of the triangle different marketing processes such as external marketing, interactive marketing and internal marketing Service Sector Management: BBA-III. -8- must be successfully carried out for service processes to succeed and to build and maintain relationships with the internal and external customers. The services marketing triangle External marketing The link between an organization and its customers is the external marketing process. External marketing represents the promises that organizations make to their customers with reference to products or services they offer. Organizations make promises to customers concerning their offerings and how delivery of the offerings will be conducted. The external communication activities of the service provider play a key role in the formation of customers’ expectations, because their expectations are affected by the service provider’s direct and indirect marketing messages. In goods as well as services, the traditional marketing activities facilitate external marketing processes. Promises made in advertisements and through promotions are used by customers to form service expectations. These can also positively or negatively influence the customers’ initial expectations of the desired level of service compared to the adequate level of service. Customers use price as an indication of the quality of the offering, while the promise of availability and accessibility of an offering has an impact on the customers’ service expectations. However, for service organizations, factors such as service employees, organization image and visible structures, and the actual service process itself, form the basis for customers’ expectations of the offering and the delivery thereof. Customers’ expectations and experiences fuse, therefore much of their final belief is drawn from the environment in which they receive the service and the personalities and behaviour of the people they encounter during service processes. The organization’s projected values and integrity must be the priorities that govern the promises made to the customers during the external marketing process. Customers expect consistent and realistic promises that will at all times be honoured by the organization. Creating unrealistic customer expectations create dissatisfied customers. Misleading customers or over-promising to them can negatively influence the relationship between the organization and the customer. Interactive marketing The interactive marketing process is about keeping the promises made by the organization to the customer along with delivering a quality service to the customer. Interactive marketing is the actual contact between the service employees and the customers and is called the "moment of truth" or service encounter. It is the decisive moment in the service process where organizations actually show what they can do and how they meet the set expectations. At these decisive Service Sector Management: BBA-III. -9- moments, everything about the service process can succeed or fail. The success or failure can be temporary, complete, or final but the interaction can never be restaged or controlled. The marketing focus of service organizations has shifted from the offering to the customers, to the interaction that takes place between the service employees and the customers. Through their interactions with employees, customers form a perception of the integrity of an organization’s service promises. They furthermore use the interaction to assess the value of the offering, and to make the decision to purchase or repeat the purchase of an offering. From a customer’s point of view, this is the most important stage of the service delivery process as it is during this process that they receive the value they actually desire. Interactive marketing performs a vital function in the establishment of a relationship between the organization and the customer. The customer’s perception of the service is derived from the delivery of the service, and cannot be separated from the contact they experience with service employees. Therefore, it can be argued that relationships are an inevitable outcome of service delivery. However, it is important for organizations to acknowledge the fact that relationships do not necessarily exist between the organization and the customer, but to a greater extent between the service employees and customers. The success of these relationships depends profoundly on the attitude service employees have towards their employment and their loyalty towards the organization. It is the responsibility of the organization to recruit service-orientated employees very carefully, involve them in organization activities, and motivate them to follow the examples set by the leaders of the organization During interaction, employees and customers meet face to face and the actions of service employees will be a major factor in influencing the customers’ expectations of the service. Customers’ evaluation of services is based on their interaction with service employees, therefore it is of the utmost importance that service organizations continuously strive to improve the quality of interactions. People forget how fast you performed a service but they remember how well you did it. Service organizations must therefore ensure that their service employees have the skills and ability to perform the service to meet the customers’ expectations. The reliability of services is tested every time a customer interacts with the employees and the service provider whom they represent. Internal marketing The marketing process that enables service marketers to deliver promises to customers is called internal marketing. Through internal marketing, the organization reveals that it consists of individuals and departments who are considered to be each other’s customers. Employees do not only provide a service to the external customers but also to each other within the organization. Promises are easy to make, but unless organizations have internal systems in place to ensure the delivery thereof, service processes cannot succeed. The success of internal service systems is dependent on the relationship between the organization and the employees. Internal marketing hinges on the assumption that employee satisfaction and customer satisfaction are interlinked, thus internal marketing must precede external marketing. Organizations whose objective is to deliver constant high service quality have to enable all employees to practice customer orientation and marketing. Service organizations must recognize that achieving objectives and creating change can only be achieved through employees. Service providers need to recruit, train, and provide tools to employees to perform superior service. People are valuable assets to an organization. They should therefore be fully equipped to provide the best service to the external and internal customers. Employees who understand their functions within the organization are more likely to create a harmonious work environment that will pave the way for less role ambiguity, less conflict, and more satisfied employees in the workplace. The examples set by management for their employees are critical factors for the success of the internal marketing process. There is a direct link between internal marketing and the actual delivery of the service, because customers believe that “what you are is what matters not what you say”. The success of services relies on the three marketing activities to be carried out successfully and to be aligned with each other. Each of the activities presents a challenge and it is important to find strategies that support them all. Successful external relationships will be repeated internally. Service Sector Management: BBA-III. - 10 - Services marketing mix - the 7 Ps (The concept) The traditional marketing mix is the most basic concept in marketing and is defined as elements which organizations control and use to satisfy or communicate with customers. The components of the traditional marketing mix are the four P’s: product, price, place, and promotion. Careful management of these components is essential for the successful marketing of goods and services in both long-term and short-term marketing strategies of organizations. Conversely, the traditional marketing mix components have been found to be too limited in their application of services. The intangibility of service offerings is not taken into consideration because the focus is on the tangibility of products. The price component overlooks the fact that many services are produced without a price being charged to the final customers, and customers frequently use price as an indication of service quality. Equally, the simultaneous production and consumption of service offerings make the distribution component difficult to implement and control. While the promotion component of the traditional marketing mix concerns itself with advertising, sales promotions and publicity, services marketing involves service employees and customers in the real time marketing of services during the interaction process. The limitations of the traditional marketing mix have lead to exploitation by service marketers of additional components that services can utilise to satisfy and communicate with customers, resulting in the adoption of the service mix. The elements off this new concept are: 1. Service offerings (product) 2. Price 3. Distribution (place) 4. Promotions 5. People 6. Physical evidence 7. Processes. The three new components address the uniqueness of three of the service characteristics. They focus, firstly, on the inseparability of service marketers from customers, secondly, on the inability to hold service in inventory which makes it critical for the service process to flow smoothly and lastly, on the fact that a highly intangible service offering must appear tangible The additional components of the service mix can be fully controlled by the service organization and play a vital role in ensuring that marketing is customer focused, not product. The ensuing sections will provide a detailed description of the service mix. Service offerings (Product) A product is anything that an organization offers to customers that might satisfy a need, whether it is tangible or intangible. In contrast, the decisions that face service marketers concerning service offerings are very different from those related to goods. An analysis of service offerings shows that it can be divided it into two distinct components namely: A core service offering that represents the intangible core benefits of services A secondary service offering that represents the tangible and augmented elements of the service offerings. The core service offerings are developed with customers’ benefit in mind and place the emphasis on the customers’ perception of services. The secondary service offerings illustrate the additional benefits that the service offers to meet customers’ additional needs, and serve to differentiate the offerings from those of competitors’. These benefits can combine both the tangible and intangible elements of service offerings that facilitate the customer to comprehend the core service. Because of its intangibility, services are difficult to control and display to customers. Consequently, service marketers often emphasise the tangible elements of service offerings. The more intangible a service, the greater is the need for tangible evidence. Tangible evidence includes packaging, brand name, corporate image, service delivery, and service employees. Service Sector Management: BBA-III. - 11 - Price In the determination of price, service marketers deal very much with the same price issues as goods marketers. Subsequently, the differences present itself when the intangible characteristic of services specifies that price becomes a quality indicator. The art of successful pricing is to establish a price level that is low enough for the exchange to represent good value to customers, but high enough to allow service providers to achieve their financial objectives. The perishable nature of services makes it important to control the demand and supply of the service offerings. The price component is the easiest to change and normally provides the quickest results. Manipulation of the price can influence and control quantity demand. An increase in price will reduce the demand and/or cause a shift to lower usage periods. Equally, a decrease in price will cause an increase in demand and stimulate new demand for the service. The price of service offerings is often used by customers as an input into their expectations, purchase decisions, and evaluation of service quality. It is seen as a tangible cue in services with a high risk and experience properties, to form expectations of the service. Price is used as an indicator of quality by customers. Thus, the assumption is formed that the higher the price of service offerings, the more is expected of it by customers. Distribution (Place) The distribution decision refers to the availability and accessibility of service offerings to customers. Availability from the customers’ point of view signifies that services are on hand when they want them, while accessibility is the relative ease with which customers can conduct service processes with the service providers. For pure services, the distribution decision is of little relevance, though most services involve a tangible component. As a result, the distribution decision involves physical locations and decisions which intermediaries use to provide the services. Promotions The promotion mix for the traditional marketing mix is usually broken down into four components namely advertising, sales promotions, public relations, and personal selling. However, with the promotion of services, there is a greater need to emphasise the tangible elements of services such as packaging, brand name, corporate image, service delivery, and service employees. The distinctive promotional needs of services stem directly from some of the unique characteristics of services. The intangibility characteristic of services results in customers perceiving them as high-risk purchases, with a need for tangible components as evidence of the service. The inseparability characteristic of services emphasises the fact that the promotion of service offerings cannot be isolated from service providers. Therefore, the visible production process, especially the part played by service employees during interaction, is a critical element in the promotion process. The service promotion challenge is to transform invisibility into visibility, vagueness into sharpness, uncertainty into evidence and risk into benefit. The development of a promotional mix for services relies on the detailed specification of promotion objectives to ensure that that appropriate messages are chosen and effectively channeled in a cost effective manner to reach the target market. Typical service promotional objectives are: • To develop an awareness or interest in the organization and its services • To communicate the benefits of purchasing a service • To build a positive image of the organization • To differentiate the organization from its competitors • To remind customers of the existence of the service and the service organization The services promotion mix uses a combination of channels to convey messages to the target market. These messages are received from sources within the organization and externally. External sources include word of mouth communications or press editorials, while internal communications originate from the traditional marketing mix and from the frontline employees. The combination of communication channels depends on the characteristics of the target market, Service Sector Management: BBA-III. - 12 - the size of the service, the nature of the service and the cost of the various channels. The promotional mix of a service organization involves the transmission of messages to past, present and future customers. The ultimate aim is to make future customers aware of the service and influence them towards purchase. People People as an element in the service mix include all the human actors - the firm’s employees (internal customers), the buyers (external customers), and other customers - who play a part in service delivery and accordingly influence the buyers’ perception of choice in the service environment. Service employees interact with customers during service delivery processes and provide cues to external customers concerning the services. Hence, it can be said that service employees’ competence, attitude, and appearance influence customers’ perception of services. Customers often experience service employees as synonymous with the service and no matter how small or large a part they play in the actual delivery of the service, they are still the focal point of the service for customers. It is crucial that service organizations stipulate very specifically to their employees what is expected of them during interactions with customers. To achieve the desired standards of service, service organizations’ recruitment and training cannot be left to the human resources department only, but should form an integral part of the service mix decisions. Within successful service organizations, the human resources department, and the marketing department work together to establish hiring criteria, training needs, and promotion activities to attract and retain employees who can deliver the quality service expected by the organizations’ target market. The marketing department plays an important role in influencing the experience that both internal customers and external customers will have. External customers choose to visit a service organization because of the messages relayed through the service mix, or word of mouth messages communicated by other customers. External customers, who encounter an unacceptable level of service from internal customers, convey negative word of mouth messages about the service received to other customers. Consequently, it is crucial that marketing departments and human resources departments work together to ensure that the quality of service delivery by internal customers leads to positive word of mouth messages to external customers. Every employee in an organization must serve other employees in some way or another. Therefore, just as external customers are needed, so are quality employees (internal customers) needed. The responsibility lies with service marketers to involve all employees in the marketing process of an organization. A high level of employee involvement and motivation is directly linked to an improvement in sales, profitability and customer loyalty. Processes Processes are the actual procedures, mechanisms, and flow of activities by which services are delivered. Customers judge services on the operational flow or on the actual delivery thereof. The inseparability characteristic of services requires customers to follow a series of extensive or complicated actions to complete the process. Often the logic of these actions escapes the customers. Whether the service process is standardised or customised, it is used as evidence by customers to judge service quality. Standardised services will follow a production-line approach, while customised services command a greater degree of empowerment. Nonetheless, the moment of truth where customers experience the evidence, is not a once-off event but an ongoing process. The main ingredients of services processes are the people who participate in it. Services are of an integrated nature and the organization’s employees continuously fuse with the external customers. The production and consumption usually takes place at the same time and research into customers’ attitudes towards service organizations suggests that customers see a service as an integral process in which they are intensely involved. The difference between service processes and manufacturing processes are that: • The customers are participants in the service processes • Service processes are difficult to structure Service Sector Management: BBA-III. - 13 - • The outcome of services is dependent on internal and external factors • The output of service processes leaves only promises and memories • Service processes play an integral part in customer satisfaction. As a rule, services cannot be fixed to a definite time span, because depending on the nature of the service; it can take anything from a moment to months to complete. A service can be a welldefined process, where all participants are aware of the process but a service can also be ill defined or not obvious to the participant in the process. Services that offer high degrees of customisation are usually ill defined. When service processes progress smoothly, they are hardly noticed by the customers, who are under the assumption that the process will occur without any problems every time it is performed. However, when the service process is not completed successfully, both the internal and external customers are frustrated and distrustful of the service organization. The success of service processes depends on the loyalty and trust- relationships organizations can build with customers. Marketing and the other organizational functions should work together to determine the needs of the internal and external customers and satisfy those needs by designing and refining effective and efficient customer-friendly service delivery processes. The actual service delivery process can be performed in three locations namely, • the customer’s environment, • at a store or an office or • electronically or via telecommunications. Management has a great deal of control over the last two service delivery processes. A service can also be performed on customers, objects, and technological equipment. Knowing this helps to understand the perceived risk for customers attached to the service purchase. Service organizations must consider the importance of communication strategies, appearance, skills, and attitude of service employees. The physical evidence of delivery processes, such as the delivery vehicles, print matter and delivery employees must also support a service organizations’ image. The perishability characteristic of services influences the service delivery process through the difficulty it presents in managing supply and demand. Supply and demand cannot be readily adjusted but techniques such as flexible service hours, price advantages for customers who buy during low demand periods, special offers that can only be redeemed during slack time, and refinement of delivery processes, can provide solutions to service organizations. Physical evidence The environment in which the service provider delivers the service and where the customers and the organization interact, as well as any tangible component that facilitates performance or communication of the service, is referred to as physical evidence. Service organizations need to provide tangible evidence of the service to develop an image in the mind of current and prospective customers. Often physical evidence overlaps with the promotion and distribution mix of the service mix. All tangible representations of services, such as brochures, letterheads, business cards, report formats, signage, equipment, and physical facilities where service are rendered, represent the physical evidence of services. Physical evidence provides service organizations with excellent opportunities to send strong, consistent, and positive messages regarding the nature of service offerings to customers. Physical evidence is most successful if it is integrated throughout the organization, meaning that it should be included in an organizations’ strategic planning. Once it has been accepted by management, it is the responsibility of the marketing department to implement it throughout the entire organization. The more intangible a service is, the more it relies on physical evidence to convey an appropriate message to customers. Physical evidence elements are employed to reduce the level of perceived risk experienced by customers. Due to the intangibility characteristic of services, it is hard to evaluate services in advance or to know the outcome of service experiences. Customers are forever looking for tangible cues by which to judge service quality. They tend to reduce the risk attached to the service offering by comparing the physical evidence of services to the offerings of competitors, use their previous experience as a framework, or rely on the opinion of others. Extremely intangible services do not necessarily provide the greatest risk to the customers. Only \ Service Sector Management: BBA-III. - 14 - when a price is attached to service offerings, can customers truly evaluate the risk attached to it. The unique characteristics of services cause customers to search for evidence of the service in each of their interactions with the organization. The new elements of the service mix, namely people, process, and physical evidence, provide customers with that evidence and allow them to form their own judgment. Difference between goods and services Intangibility: The most basic and universally cited, difference between goods and services is intangibility. 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 intangible goods. E.g., health care services are actions (surgery, diagnosis, examination and treatment) performers by providers and directed towards the patients and their families. The services cannot be actually seen or touched by the patients, although the patient may be able to see or touch the tangible components of the service (e.g. equipment, hospital room) Intangibility presents several marketing challenges: Services cannot be inventoried, and therefore fluctuations in demand are often difficult to manage. E.g. there is tremendous demand for resort accommodations in phoenix in February, but little demand in July. Yet the resort owners have the same number of rooms to sell year-round. Services cannot be patented legally, and new service concepts can therefore easily be copied by the competitors. Services cannot be readily displayed or easily communicated to the customers, so quality may be difficult for the consumers to assess. Decisions about what to include in advertising and other promotional materials challenging, as is pricing. The actual cost of a “unit of service” is hard to determine and the price-quality relationship is complex. Heterogeneity: Because services are performances, frequently produced by humans, no 2 services will be precisely alike. Heterogeneity also results because no two customers are precisely alike; each will have unique demands or experience the service in a unique way. Thus, the heterogeneity connected with services is largely the result of human interaction (between and among employees and customers) and all of the vagaries that accompany it. E.g. a tax accountant may provide a different service experience to two different customers on the same day depending upon their personal needs and personalities. Because services are heterogeneous across time, organizations and people, ensuring consistent service quality is important. Quality actually depends on many factors that cannot be fully controlled by the service supplier, such as ability of consumer to articulate his needs, willingness & ability of the personnel to satisfy those needs, presence of other consumers and level of demand for the service. Simultaneous production and consumption: Whereas most goods are produced first, then sold and consumed, most services are sold first and then produced and consumed simultaneously. For example, an automobile can be manufactured in Detroit, shipped to San Francisco, sold 2 months later and consumed over a period of years. But restaurant services cannot be provided until they have been sold, and the dining experience is essentially produced and consumed at the same time. This means that the customer is present while the service is being produced and thus his views are taken in the production process. Because services are often produced and consumed at the same time, mass production is difficult. The quality of service and customer satisfaction depends on the real time including actions of employees and interaction between employees and customers. It is not possible to gain economies of scale through centralization. If the services are decentralized they can be delivered to the consumer in convenient locations. As the customer is part of the production process, they Service Sector Management: BBA-III. - 15 - affect the outcome of the service. A ‘problem’ employee can cause problems for themselves and for others in the service setting leading to lower level satisfaction. E.g. in a restaurant setting, an over demanding and intoxicated customer will command extra attention of service provider and negatively impact the experiences of other customers. Perishability: Refers to the fact that services cannot be saved, stored, resold or returned. A seat on an airplane or restaurant not used cannot be reclaimed or used or resold at a later time. Due to this nature a service cannot be inventoried. Demand forecasting and creative planning for capacity utilization are therefore important. Since services cannot typically be returned or resold it implies strong recovery strategies when things go wrong. E.g. a bad haircut cannot be returned, the customer should have strategies to recover the customers good will if and when such problems occur Why marketing of services? / Growth in the service sector: It is obvious that the growth in the services sector has been substantive. Households as well as firms are demanding more services as well as services of increasing quality and sophistication. There are number of reasons for this growth in the service sector as mentioned below: Greater affluence: With the increasing affluence of people resulting from the growth of economies there has been a greater desire for Quality life. Consumers are willing to spend more on leisure resulting in greater demand for recreation and entertainment facilities, tourist resorts and other hospitality services. Also, there has been a tendency on externalization of services production from households to the formal economy. Demand for services like interior decoration, laundry, care of household products etc. has increased which consumers used to perform themselves earlier. Also, with increased incomes, there has been a greater demand for financial services. Leisure time: - People do get some time to travel and holiday and therefore there is a need for travel agencies, resorts, hotels, and entertainment. There are others who would like to utilize this time to improve their career prospects and therefore there is a need for adult education/distance learning/part time courses. Working women: As more and more women have started working, the time has become most scarce commodity in family life. This has led to more demand for crèches, baby-sitting, household domestic help etc. Further, working women and the resulting two income households have created greater demand for, certain services like retailing, real estate and personal finance services Greater life expectancy: The economic growth and increasing standard of living have also resulted in the greater life expectancy and thereby an expanding old age population. Thus there is an increased need for services like old age homes, nursing homes, healthcare centers, etc. Greater complexity of products: With rapid development in technology, the consumer today uses a lot of complex products in his day-to-day life. Thus there is a greater demand for specialists who provide maintenance and upkeep of such products like cars, home computers, household appliances etc. Increased complexity of life: The greater complexity of life has created demand for a wide range of services, especially legal and financial advice. The number of specialists in income tax, labor laws, legal affairs, marriage counseling, employment services etc. has been increasing. Globalization Globalization of economies has led to an increased demand of communication, travel and information services. Also there has been an increased and new demand on legal and other professional services. Service Sector Management: BBA-III. - 16 - Resource scarcity and ecology: - As the natural resources are depleting and need for conservation is increasing, we have seen the coming up of service providers like pollution control agencies, car, pools, water management, etc. New products: - the development in information technology has given rise to services like PCOs, Pager service providers, Web Shoppe, etc While the role of agriculture has been reducing in the economies of industrial societies that of service sector has been increasing at a fast pace. Thus, as the economies shift from developing to developed economies the, they show more and more shift towards services. Buyer Behaviour in Services In buying decisions many times other people also influence the decision. In services these roles are played by many persons. In purchase of any service six distinct roles are played Initiator: The person who has a specific need and proposes to buy a service Influencer: The person or group of persons whom the decision maker refers to or who advice the decision maker. Gate Keeper: The person or organization or promotional material, which act as filter on the range of services which enter the decision choice Decider: The person who makes the buying decision Buyer: The person makes the actual purchaser User: The actual user. For example if a sales executive wants to do a market tour: His boss may be the initiator The travel agency may act as a Gatekeeper The finance department may be the influencer The administrative department the buyer The executive the user. In this case the user may have no role in the buying process. Hence while targeting a customer the service provider may have to influence other persons. The Consumer decision-making The consumer’s decision to purchase or reject a product or service is the moment of final truth for the marketer. It signifies the marketing strategy has been wise, insightful and effective, whether it was poorly planned and missed the mark. Marketer are, therefore, interested in the consumer decision-making process by which a consumer selects an alternative amongst the lot available. The decision not to buy is also an alternative. A simple consumer decision-making model, ties together the psychological, social and cultural concepts into an easily understood framework. The decision model has three distinct sets of variables: 1. Input Variables, 2. Process Variables, 3. Output Variables. Input Variables:Input variables are those variables that affect the decision making process and include commercial marketing efforts as well as non-commercial influences from the consumer’s sociocultural environment. Decision Variables: The decision process variables are influenced by consumer’s own psychological fields, which affect their recognition of a need, their pre-purchase search for information and their evaluation of alternatives. Service Sector Management: BBA-III. - 17 - Output Variables:The output phase of the model includes the actual purchase (either trial or repeat purchase) and post purchase evaluation. Both pre-purchase and post-purchase evaluation feed back in the form of experience into the consumer’s psychological field and serves to influence future decision processing. (On a holiday a customer may change hotels in between his stay). Factors Influencing The Buying Behaviour Situational Factors: Time, Store’s atmosphere, Marketing Stimuli (the occasion) Personal Factors: Personality, life style, other demographic factors like age, gender, occupation etc. Social Factors: Culture, reference group, family Psychological Factors: Perception, attitude, motivation Consumer evaluation of services For ‘consumer’ evaluation process the concept of “goods” has to be considered, as service characteristics have definite implication on the consumer evaluation process. Therefore for service industry, the service provider must understand how consumers choose and evaluate their offerings. There are three types of products: Search product: - search qualities are those attributes of a product that the customer can determine before the purchase. This is more common in physical goods. Experience product: - experience qualities are those attributes that can only be determined after the purchase, or during the period of consumption. Credence product: - it is being said that certain products have such characteristics which the consumer cannot evaluate even after consumption or purchase. Such characteristics exist invariably in services. e.g.: wheel aligning of the car, astrology etc. Ten such qualities that influence the consumer’s evaluation of services (Quality Dimensions of Services) Consistency: - it involves consistency and reliability of performances and dependability. It means that the firm performs the service right the first time. It also means that the firm honours its promises especially in terms of accuracy in billing, record keeping and performing the service at the designated time. Concern: -it is the willingness or responsiveness of employees to provide the service. It involves timeliness of service or giving prompt service, calling the customer back quickly or mailing the transaction slip immediately. Competence: - it means having the required skills and knowledge to perform the service. It involves knowledge and skill of the contact personnel, knowledge and skill of operating support personnel and research capability of the organization. E.g. securities brokerage firm. Contact: - it involves approachability, access and ease of contact. It means that the service is easily accessible by telephone; waiting time to receive the services is not extensive, convenient hours of operation and convenient location of service facility. Courtesy: - it involves politeness, report, consideration and friendliness of contact personnel. It includes consideration for the consumer’s property. Clean and neat appearance of public contact personnel. E.g. no muddy shoes on the carpet, proper telephone operators etc. Communication: - it means keeping consumers informed in a language that they can understand and listen to them. It may mean that the company has to adjust its language for different consumers – increasing the level of sophistication with a well-educated consumer and speaking simply and plainly with a novice. It involves explaining the service itself and how much the service will cost explaining the trade-off between service and cost and assuring the customer that a problem will be handled. Credibility: - it involves trustworthiness, believability, honesty. It involves having the customer’s best interest at heart thus contributing to credibility, company name and reputation, personal characteristics of the contact personnel and degree of hard sell involved in interaction with the customer. Confidentiality: - the security and the freedom from risk or doubt, involving physical safety, financial security or confidentiality. Service Sector Management: BBA-III. - 18 - Customer knowledge: - it involves making the effort to understand the customer’s needs, i.e. learning the customer’s specific requirements, providing individualized attention and recognizing the regular customer. Tangibles: - it includes physical evidence of the service, physical facilities, and appearance of personnel tools or equipments used to provide the service, physical representations of the service such as a plastic credit card or a bank statement and other customers in the service facility. Emerging key services As economy shifts from developing to developed stage, they will show more and more shift toward services Today, the fastest growing segments of the US economy is services In 1948 54% of the GDP of US was generated by services which is 80% now Employment in this sector which was 55% in 1950 is now 83% The US balance of trade in goods has remained in the red for many years, but there has been a trade surplus in services Today service sector dominates the economics of many developed nations. As countries develop the role of agriculture in the economy declines and that of services increase. (China has 50% GDP from service, 35% from industry, and 15%from agriculture). During recession it has been seen that service output declines less than industrial output – the service employment is less sensitive to business cycle fluctuation. Globalisation as strategy for service firm is becoming more important INDIAN SCENARIO The service sector now accounts for more than half of India's GDP: 51.16 per cent in 1998-99. This sector has gained at the expense of both the agricultural and industrial sectors through the 1990s. The rise in the service sector's share in GDP marks a structural shift in the Indian economy and takes it closer to the fundamentals of a developed economy (in the developed economies, the industrial and service sectors contribute a major share in GDP while agriculture accounts for a relatively lower share). The service sector's share has grown from 43.69 per cent in 1990-91 to 51.16 per cent in 1998-99. In contrast, the industrial sector's share in GDP has declined from 25.38 per cent to 22.01 per cent in 1990-91 and 1998-99 respectively. The agricultural sector's share has fallen from 30.93 per cent to 26.83 per cent in the respective years. Some economists caution that if the service sector bypasses the industrial sector, economic growth can be distorted. They say that service sector growth must be supported by proportionate growth of the industrial sector; otherwise the service sector grown will not be sustainable. It is true that, in India, the service sector's contribution in GDP has sharply risen and that of industry has fallen (as shown above). But, it is equally true that the industrial sector too has grown, and grown quite impressively through the 1990s (except in 1998-99). Three times between 1993-94 and 1998-99, industry surpassed the growth rate of GDP. Thus, the service sector has grown at a higher rate than industry that too has grown more or less in tandem. The rise of the service sector therefore does not distort the economy. The share of agriculture sector to GDP has come down from 50% in 1960 to 24% Service sector contribution to GDP is around 54% with an annual growth of 8% Employment in this sector is around 50% The response to liberalization has been more in service sector, partly because lower fixed investment requirements, example:- today’s concept of banking Technological advances have made it possible for India to compete on global basis in areas like SOFTWARE, IT, HEALTH, EDUCATION, etc., In addition lower wage structure has helped to develop CALL CENTRES, MEDICAL TRANSCRIPTION, etc., From 1996 BSE has given a prominent place to service industry in its 30-share index Since no tax is imposed on agriculture sector, most of the tax came from manufacturing sector. Now services are being taxed Service tax collection is to the tune of 5000 crore. 83% of this is contributed by service sectors. 51% -Telecom, others are Insurance, AD agencies, Courier and stockbrokers. Service Sector Management: BBA-III. - 19 - Many export benefits like EPCG is now extended to the service sector. In last 25 years the increase in employment in the organized sector is 57% while if only service sector is considered it is 70%(other than service sector it 41%) India’s service exports in1997 were 9.3 billion $ against its merchandized exports of $32.2 billion. It is expected that service exports could a third of merchandize exports now this will be well above the global average of ¼. It implies that India which has failed to catch the bus in the exports of manufactures is among the early leaders of the developing world in the race for service exports. Within the services sector, the share of trade, hotels and restaurants increased from 12.52 per cent in 1990-91 to 15.68 per cent in 1998-99. The share of transport, storage and communications has grown from 5.26 per cent to 7.61 per cent in the years under reference. The share of construction has remained nearly the same during the period while that of financing, insurance, real estate and business services has risen from 10.22 per cent to 11.44 per cent. The fact that the service sector now accounts for more than half the GDP probably marks a watershed in the evolution of the Indian economy. Service Sector Management: BBA-III. - 20 - BANK MARKETING Introduction: The banking sector in India has been widening its scope due to liberalization. Banks today are not mere suppliers of money. They have become providers of services such as selling insurance, mutual funds, investment opportunities, etc. In the past, the banks did not find any attraction in the Indian Economy because of the low level of economic activities and few business prospects. Today we find positive changes in the National Business Development Policy. The private sector banks failed in serving the society. This resulted in the nationalization of 14 commercial banks in 1969. Nationalization of commercial banks paved the way for the development of Indian economy and canalized financial resources for the upliftment of weaker sections of the society. The involvement of Public Sector banks transformed the Indian economy. It was felt that bankers review their services not only as financial intermediary but also as a pacesetter. Adequate financial resources are required for completing welfare projects. The entrepreneurs need large-scale credit facilities on liberal terms and conditions. Individuals have developed new hopes and aspirations from banks and the rural population and backward regions strongly claim their right for a sound and balanced development. Banking marketing: The banking industry is undergoing a revolution caused by deregulation. This scenario is reflected in the evolution of bank marketing. Banking systems may vary in different parts of the world, the reasons for the variation maybe due to features like social banking, low degree of technological sophistication and cumbersome legal systems. Marketing of banking services is concerned with product, place, distribution, pricing and promotion decisions in the changing socio-economic and business environment. The users of banking services or the prospects play a very significant role in the formulation of overall marketing strategies. The bank marketing activities are concerned with the designing of product strategies keeping in view the needs and requirements of prospects. The causes of Bank Marketing can be seen as: Rising customer needs and expectations due to improvements in general standard of living. Entry of foreign and private sector banks in India. Economic liberalization of Indian economy. Phenomenal growth of competition due to economic liberalization. Rise in the Indian middle class with considerable resources. Government intervention in protecting the interests of consumers. A comprehensive definition of bank marketing by Deryk Weyer of Barclay’s bank states that: “It consists of identifying the most profitable market now and in future by assessing the present and future needs of the customer. This is done by setting business development goals, making plans to meet them, managing and promoting the various services to achieve these goals. Bank marketing is not just advertising and promotion campaigns but a managerial process by which services are matched with markets. This indicates evolving a suitable marketing strategy which suits the need of the customer.” Service Sector Management: BBA-III. - 21 - Banking structure in India Socio-economic factors affecting savings: The social and economic factors have a far-reaching impact on the behaviour of customers. This is due to the fact that human beings are directly influenced by the socio-economic consideration. Social factors a) Group of family, b) Family life-cycle, c) Family decisions, and d) Role of opinion leaders. Economic factors a) Disposable income, b) Price Index c) Stages of economic transformation d) Global economic co-operation. MARKET SEGMENTATION In banking services, the banks are expected to satisfy rural customers, urban customers, and high-earning and low-earning customers, small-scale and large-scale entrepreneurs and so on. Importance of segmentation in banking services: Since the banks have to deal with different types of customers from different fields and localities, banking services need segmentation. The purchasing power of potential customers is different. In respect of term deposits of different maturities or deposit schemes, the potential customers are required to be influenced. These potential customers may be located in various pockets of urban areas. In the Indian setting, we find the emergence of a wide rural market. Here, it is necessary that the segmentation be done in tune with the changing socio-economic conditions of the rural customers. Thus, market segmentation is important not only from the perspective of expanding the market but also with the motto of satisfying the client. If the marketing decisions of the banks are on the basis of micro-level market segment, only then a fine blend of service and profit elements is possible. Service Sector Management: BBA-III. - 22 - MARKETING MIX PRODUCT Banks products: (A) Deposits: Savings, Current, Fixed etc. (B) Advances: (1) Fund Oriented: a) b) c) d) e) f) g) Term Loan, Clean Loan, Bills Discounting, Advances, Pre-shipment Finance, Post-shipment finance, Secured and Unsecured lines of credit. (2) Non-fund oriented: a) b) Guarantees, and Letter of Credit. (C) International banking: a) b) Letter of Credit, and Foreign Currency. (D) Consultancy: a) b) c) d) Investment Counselling, Project Counselling, Merchant Banking, and Tax Consultancy. (E) Miscellaneous: a) b) c) d) e) f) g) Traveller Cheques, Credit card, Remittances, Collections, Sale of Drafts, Standing instructions, and Trusteeship. In the banking the products are services. Services cannot be seen or protected like goods. The potential buyer of the services can form an opinion about the services offered. The changing trends in the non-banking investments compel certain modifications to be made in the existing product line. The product should suit the market needs. Bank services are viewed in terms of the satisfaction they deliver and not just the things that are created with value. For instance, a bank account is seen in terms of customer satisfaction such as safety, convenience of paying dues, keeping records, transferring funds, status, and pride in one’s bank. The various deposits, loans and advances, consultancy services, international banking, safe deposits, credit cards, etc. are the products sold by the bank. Bankers need to identify their core and supplementary product services as it has more marketing implication. The banker should offer an optimum mix of the core and augmented products. Service Sector Management: BBA-III. - 23 - CORE PRODUCT: It is the fundamental benefit the customer buys from the bank. They define what kind of business the firm does, for example, the business of commercial bank. But customers do not buy the core product, they only buy the benefit. The role of the bank marketer is to convert the core products into a generic product, which satisfies the needs of the customer. AUGMENTED PRODUCT: This is the basic product with some ancillary attached to it. For example, when one opens a Suvidha Account with Citibank, he gets an ATM Card free. The bank marketer must offer a multidimensional product or what is called a ‘product package’. The product related strategy includes: Introduction of new schemes- EXAMPLE: DEMAT ACCOUNT. Modification of the product offered by incorporating technological EXAMPLE: Telebanking, Online Banking, etc. Change in the product line or package – EXAMPLE: From Corporate Banking to Personal Banking; or even deleting an existing service line. development – PRICE Pricing in Banking relates to the interest rates paid by the banker on deposits, interest charged by the banker on loans and demand drafts, charges for various types of transactions and fees for certain services. In India, banks adopt administered pricing structure to some extent as the deposit and lending rates are prescribed by RBI. The charges for banking services are agreed upon by Indian Banks Association. Pricing policy of a bank is considered important for raising the number of actual customers. But even in this regulated pricing environment, pricing can be used as a tool in their marketing strategy. The specific pricing methods that can be adopted in deregulated environments are: Cost plus pricing which calls for a detailed analysis of cost structure of various bank products and services. Market Oriented Approach which indicates what the market can bear or accept as in the case of a corporate client who may not be price sensitive as against an individual client. Competition related Approach, where the price is decided based on the competitor’s price. In this case, the ‘value’ like high return, convenience, and speedy service must be highlighted. The banks are required to frame two-fold strategies. Strategies concerned with interest and commissions to be paid to the customers and interest and commissions to be paid by the customer for different types of services. PROMOTION The objects of a promotion programme are to inform about the new service product, to persuade the customer, to remind the customer, build image of the bank, etc. Banking services can be promoted in two ways: 1. Personal promotion: The bank marketer gets the best opportunity to tangibilise the product through personal selling; persuasion is more effective with direct contact. It helps in creating impulse buying. 2. Impersonal Promotion: i.e. advertising, publicity and sales promotion measures. An advertisement in banking is a promise- a promise of satisfaction to prospects who buy the service offered by the bank. Banks use all types of advertisement such as newspaper, radio, television, magazines and hoardings. Also, sales promotion devices such as Point of Purchase material, brochures and advertisement specialties like ball pens, calendars, diaries, etc. Service Sector Management: BBA-III. - 24 - Publicity is a major strength as a promotion tool than advertising as customers tend to believe a news item rather than an advertisement. Word of promotion is yet another important promotion tool as it is a better persuader and convincer than advertising and personal selling, as banking services are narrated by customers themselves. Besides, as Social Welfare and Corporate Social Responsibility are considered to be an important part of banking services, the publicity measures need due care. PLACE The place decision mainly deals with selection of a suitable location for the branch. Sound location decisions help in activating the business. The location should have adequate availability of transportation, communication, electricity and other necessary facilities for the smooth functioning of the bank. Technological developments, increased customer satisfaction, inadequacy of the traditional channel to serve all customer segments have brought bout ATM, telebanking, home banking, Internet banking and now SMS Banking. Another significant development is a strategic alliance set up by the private banks to overcome the handicap of limited branch network. In such alliances the branch network of one branch will be used by the other for selected transactions like bill collection, cheque collection, etc. PEOPLE Banking products cannot be separated from the person (banker) who markets them. The product and the seller together constitute the banking product. Banks should adopt internal marketing in order to make the whole business customer-oriented. The bank products should be marketed to the employees first before they are marketed to customers. The corporate mission should be communicated repeatedly and effectively to all employees by the top management. The placement policy should emphasize that the recruits should not only be conversant with all aspects of banking business but also have the skill for social interaction and tolerance for interpersonal contact. PROCESS It involves all activities right from the product conception stage, to product designing and development down to its marketing at the branch level. Banks which were more focused or activity-oriented have shifted to customer-oriented service delivery. This is essentially due to the technological advances. Automation of transactions, accounting procedures, data handling, as well as process re-engineering has helped reduce delays in processing transactions- example: Loan applications, clearing cheques, etc. PHYSICAL EVIDENCE Banking products are intangible and physical evidence focuses the banker’s attention on this aspect. The environment of banks is changing. It is becoming friendlier with attractive layouts and décor. Most private and foreign banks like ICICI, Citibank, and HDFC portray a new welcoming and friendly look to the customers rather than drudgery banking counters. Attractive brand names, logos, symbols, etc. add to the customer’s perception of service quality. PRODUCTIVITY Productivity relates to how inputs are transformed into outputs that are valued by customers. Improving productivity keeps cost in control. Banks have improve productivity through computerization, by changing transaction systems – like the new banks do not have pass books – they only send quarterly statements; the specimen signatures are also checked through the computers. Bank Marketing in the Indian Perspective Service Sector Management: BBA-III. - 25 - The Indian banking can be broadly categorized into nationalized (government owned), private banks and specialized banking institutions. The Reserve Bank of India acts a centralized body monitoring any discrepancies and shortcoming in the system. Since the nationalization of banks in 1969, the public sector banks or the nationalized banks have acquired a place of prominence and has since then seen tremendous progress. The need to become highly customer focused has forced the slow-moving public sector banks to adopt a fast track approach. The unleashing of products and services through the net has galvanized players at all levels of the banking and financial institutions market grid to look anew at their existing portfolio offering. Conservative banking practices allowed Indian banks to be insulated partially from the Asian currency crisis. Indian banks are now quoting al higher valuation when compared to banks in other Asian countries (viz. Hong Kong, Singapore, Philippines etc.) that have major problems linked to huge Non Performing Assets (NPAs) and payment defaults. Co-operative banks are nimble footed in approach and armed with efficient branch networks focus primarily on the ‘high revenue’ niche retail segments. The Indian banking has finally worked up to the competitive dynamics of the ‘new’ Indian market and is addressing the relevant issues to take on the multifarious challenges of globalization. Banks that employ IT solutions are perceived to be ‘futuristic’ and proactive players capable of meeting the multifarious requirements of the large customer’s base. Private Banks have been fast on the uptake and are reorienting their strategies using the internet as a medium The Internet has emerged as the new and challenging frontier of marketing with the conventional physical world tenets being just as applicable like in any other marketing medium. The Indian banking has come from a long way from being a sleepy business institution to a highly proactive and dynamic entity. This transformation has been largely brought about by the large dose of liberalization and economic reforms that allowed banks to explore new business opportunities rather than generating revenues from conventional streams (i.e. borrowing and lending). The banking in India is highly fragmented with 30 banking units contributing to almost 50% of deposits and 60% of advances. Indian nationalized banks (banks owned by the government) continue to be the major lenders in the economy due to their sheer size and penetrative networks which assures them high deposit mobilization. The Indian banking can be broadly categorized into nationalized, private banks and specialized banking institutions. The Reserve Bank of India acts as a centralized body monitoring any discrepancies and shortcoming in the system. It is the foremost monitoring body in the Indian financial sector. The nationalized banks (i.e. government-owned banks) continue to dominate the Indian banking arena. Industry estimates indicate that out of 274 commercial banks operating in India, 223 banks are in the public sector and 51 are in the private sector. The private sector bank grid also includes 24 foreign banks that have started their operations here. The liberalize policy of Government of India permitted entry to private sector in the banking, the industry has witnessed the entry of nine new generation private banks. The major differentiating parameter that distinguishes these banks from all the other banks in the Indian banking is the level of service that is offered to the customer. Verify the focus has always been centered around the customer – understanding his needs, preempting him and consequently delighting him with various configuration of benefits and a wide portfolio of products and services. These banks have generally been established by promoters of repute or by ‘high value’ domestic financial institutions. The popularity of these banks can be gauged by the fact that in a short span of time, these banks have gained considerable customer confidence and consequently have shown impressive growth rates. Today, the private banks corner almost four per cent share of the total share of deposits. Most of the banks in this category are concentrated in the high-growth urban areas in metros (that account for approximately 70% of the total banking business). With efficiency being the major focus, these banks have leveraged on their strengths and competencies viz. Service Sector Management: BBA-III. - 26 - Management, operational efficiency and flexibility, superior product positioning and higher employee productivity skills. The private banks with their focused business and service portfolio have a reputation of being niche players in the industry. A strategy that has allowed these banks to concentrate on few reliable high net worth companies and individuals rather than cater to the mass market. These well-chalked out integrates strategy plans have allowed most of these banks to deliver superlative levels of personalized services. With the Reserve Bank of India allowing these banks to operate 70% of their businesses in urban areas, this statutory requirement has translated into lower deposit mobilization costs and higher margins relative to public sector banks. LATEST DEVELOPMENTS ATMs may be treated at par with bank branches: The spreading ATM culture looks set to get hard knock with the Reserve Bank of India planning to treat them at par with bank branches. The RBI on Saturday sent a draft circular on a branch authorization policy to all the banks. For the purpose of authorization, the RBI said a “branch” would include a full-fledged branch, a satellite office, an extension counter as well as offsite ATMs. However, call centers have been kept out of it. This means that the banks will need the RBI’s advance approval for setting up as well as closing down ATMs. So far, banks could set up ATMs on their own and keep the local RBI offices informed at the time of operationalising them. The State Bank of India has over 7,000 ATMS – roughly half the number of its branches. ICICI Bank has about 2,000 ATMs, four times its branch network. UTI Bank and HDFC Bank, too, have sizable number of offsite ATMs. The total number of ATMs could be 18,000 throughout the country. Telebanking and electronic banking: A customer can access information about his/her account through a telephone call and by giving the coded Personal Identification Number (PIN) to the bank by Telebanking. Some banks like SBI, Andhra Bank, etc. have made this facility available to some branches. Automatic withdrawals and transmission of cash balance data and other information about an account is another facility that is offered by banks in a consolidated form through fax or telex. Some banks have also adopted the use of E-mail service for data and information transmission. Banks have also started with the Electronic display of information through Satellite Communication System and transfer of funds through the same channel for inter branch and inter-bank adjustment and clearance of cheques, drafts, etc. Cell phone banking and inernet banking: Through Inter-net banking one can visit the website of each bank by entering his password and know the account balance and even pass his own credit and debit entries. This means that we can do our banking through our personal computer sitting at home. Banks may soon allow zero balance savings accounts through Internet facility only. Customers can now make balance enquiries, download statements and open fixed deposits over the net. They will soon be able to carry out all their transactions over the net. So visiting a bank would become needless. Time to come, Mobile phones will drive banking transactions. These mobile phones will be equipped with smart cards that are embedded with banking and other information. This mobile phone banking facility is yet to come but the mechanics of linking the banking with the cell phone is being sorted out. Teller machines are being installed in the banks for the Electronic banking facility. The use of e-mail for banking will open up new avenues for Internet banking. Banking will be on wheels and mobile by the use of smart banking. Service Sector Management: BBA-III. - 27 - CHARACTERISTICS OF SERVICES – with reference to Banking Intangibility Financial services are generally intangible, but the service providers go to considerable lengths to ‘tangibilise’ the service for customers. Regular bank statements, ‘gold’ credit cards, and insurance policies are all examples of the way in which the financial services are presented to customers. They can enhance the image of the service and the provider can even bestow status or implied benefits upon the user as with a gold card. Physical reminders of the service product, brand name and value serve to reassure the consumer and help the organisations positioning. Inseparability The degree of inseparability depends upon the type of service and the actual supplier. Many everyday transactions are carried out now via automated services- the automated teller machines (ATMs), net banking etc. Additionally, many financial services are sold by brokers and agents of various kinds. Services are frequently handled by agents are credit card and other currency/travelers cheque encashment. Heterogeneity/variability The complexity of the service transaction process will determine the extent of variability and this can differ to a large extent between institutions and even with one institution. The greater the degree of automation within any transaction process, the greater the degree of standardization. Thus simple transactions may be carried out via ATMs and completely standardized or via branch counter where they might be fairly standardized but subject to some variation in quality. Total standardization is not necessarily desirable from the consumer’s point of view. A friendly greeting or being addressed by name can enhance service delivery and while an ATM cannot arrange an emergency overdraft facility when funds are low, branch staff can look at the standing of individual customers and make arrangements when appropriate, satisfying the customer and profiting from charges applying to the account. Perishability The degree of Perishability depends on the type of service. If a cheque needs to be cleared by a certain date and the system causes delay then the benefits to the consumer are lost so the service could be said to be perishable. By and large, money and financial services are enduring in nature. If a bank’s reserves are not fully utilized profitably through lending or investment they will still retain their worth and may be utilized again at a later date. A bank branch, which does not have any customers at all on a particular day, may actually gain rather than lose profit as staff may be able to use the peace and quite to catch up on other work. PEST Analysis for financial services Political/ Legal Influences which have an impact on financial services and consumer confidence include the following: State provision of pensions Government encouragement of savings and investment (for e.g. via tax benefits) Regulatory control and protection (to prevent the collapse of financial institutions and protect investors money) Economic Economic factors are key variables which have an impact on the activity in the financial services sector. The level of consumer activity is governed by income levels and personal wealth. As income levels grow, more discretionary income is available to spend on financial services. Consumer confidence in the economy and in job security also has a major impact; if lean times are foreseen ahead, savings will take priority over loans and Service Sector Management: BBA-III. - 28 - other forms of expenditure. Consumers may also seek easy access savings and be willing to tie up their money for longer periods with potentially more attractive investments. The main economic factors that should be monitored with regard to fianacial services marketing are as follows: Personal and household disposable income Discretionary income levels Employment levels The rate of inflation Income tax levels and taxation structures Savings and investment levels and trends Stock market performance Consumer spending & Consumer credit Socio-cultural Many demographic factors have an important bearing on financial services markets. Changing attitude towards consumer credit and debt Changing employment patterns Numbers of working women The ageing population Marriage/divorce/birth rates Consumption trends Technological Technology has a major impact on many industries including financial services and banking in particular. ATM services which not only provide cash but also allow for bill payments, deposits and instant statements are widely used. From the customers’ viewpoint, technology has played a major role in the development of the process whereby the service is delivered. Automated queuing systems have made visits to the bank easier and more convenient. Telephone Banking and insurance services are now being used in place of the traditional branch-based service process. Technology has also played a major role within organizations, bringing about far greater efficiency through computerized records and transaction systems and also in business development, through the setting up of detailed customer databases for effective segmentation and targeting. The main technological developments fall within these categories; Process developments Information storage and handling Database system MERCHANT BANKING Merchant banking may be defined as an institution, which covers a wide range of activities such as management of customer services, portfolio management, credit syndication, acceptance credit, counseling, insurance, etc. The notification of the Ministry of Finance defines a merchant banker as, "any person who is engaged in the business of issue management either by making arrangements regarding selling, buying or subscribing to the securities as managers, consultant, adviser or rendering corporate advisory service in relation to such issue management" Services of Merchant Banks: The services of merchant bankers are described in detail in the following way: Project Counseling: Issue Management: Underwriting of Public Issue: Managers, Consultants or Advisers to the Issue: Portfolio Management: Advisory Service Relating to Mergers and Takeovers: Off Shore Finance: Loan Syndication: Service Sector Management: BBA-III. - 29 - Corporate Counseling: Service Sector Management: BBA-III. - 30 - TOURISM MARKETING Definition Tourism is a temporary, short-term movement of people to destinations outside the places where they normally live and work. It involves travels and stay for temporary period to a place distant from the residence ranging from weekend to a few weeks or months. Introduction: Who is a Tourist? Tourist is a temporary visitor to a country other than the one, which he usually resides for any reason other than following an occupation remunerated within the country visited. The temporary period should not be less than 24 hours. There is a considerable cross border day traffic amongst many groups of neighboring countries. Such visitors are defined as Excursionist. The Tourism Industry The tourism industry comprises of the following main and distinctive sectors: Transportation Accommodation Tour operators Tourism Destination Operators/ Destination Management FORMS OF TOURISM Tourism is a generic term, which includes several types of travel and stay depending upon the motivations that impel people to move from place to another. The main purpose of travel is to determine the form of tourism. Following are the forms of tourism. a. Domestic tourism/ Internal Tourism b. International tourism/ External tourism c. Holiday tourism-It has many forms. They are as follows. Recreational tourism Health tourism Sports tourism Cultural tourism d. Business travel – e. Common interest tourism - It includes visitors who travel for specific purpose and objectives other than that of holiday and business. The return of people to the country of their origin labeled as Ethnic Tourism also falls in this category Some Concepts : Time Sharing: Vacation property ownership without the up-front cost of owning a property year round, you pay for the time you use. You may use your home resort every year or trade to thousands of other affiliated resorts worldwide. The time-share market, across the globe, is approximately USD 6 billion industry at present and is growing at an average rate of 20 percent every year. There are only 45,000 – 50,000 timeshare owners in India registered with the RCI. Reputed companies like Marriot, Hyatt, and Radisson etc are venturing into the time-share business. Pilgrimage Tourism- It involves visiting various places of worship. Today more than 50% of the 9.2 million domestic tourists travel to such places. In 1998 more than 95 lakh people assembled at the Kumbh Mela, the largest and the last of its kind in the 20th century. Beach tourism: India with its coastline of 7500 kms, offers some of the most exotic beach holidays in the world. India boasts of many beaches of Goa, Kovalam and Gopalpur. On the west coast, Lakshadweep offers a chain of coral islands and perfect beaches to the tourists. On the other hand, Orissa offers its ample golden and sunny beaches to the tourists. At the tip of the Indian mainland we have Kanyakumari. Adventure tourism: India’s vast geographical diversity provides a vast potential for adventure tourism and also the prices here are very low. Travel agents offer packages for individuals and Service Sector Management: BBA-III. - 31 - groups. Mountaineering, trekking, etc are some of the possibilities. There are sports like skiing, scuba driving, angling, wild life and bird watching, etc. Features Of Tourism Product: Each component of tourism is highly specialized and together makes the final product and cannot be provided by single enterprise. Sales intermediaries like tour operators, travel agent and hotel brokers play a dominant role. Demand for tourism is highly unstable due to seasonal, economic, and political factors. MARKETING MIX. PRODUCT. The panoramic view of the location, travel to the destination, the accommodation and facility as well as entertainment at the destination all forms the tourism product. Components Of Tourist Product BENEFIT CORE BENEFIT MEANING WITH RESPECT TO THE TRAVEL AND TOURISM INDUSTRY The fundamental benefit or service that Traveling the customer is buying BASIC PRODUCT Basic, functional attributes Ticketing, hotel reservation EXPECTED PRODUCT Set of attributes/conditions the buyer Customer friendliness, good food normally expects AUGMENTED PRODUCT Prompt services, comfortable and That meets the customers desires convenient trip, spectacular sights, beyond expectations music POTENTIAL PRODUCT The possible evolution to distinguish Totally customized tour packages, A the offer grade service at every stage Transportation. Without the transportation facility the attraction is of no use. The infrastructure and equipment are the components of transportation Apart from the various components of tourist product, there are three levels of service package for tourist products and they are as follows: Core product: comprises of essential need or benefit sought by customer. For e.g.: relaxation, fun, self-fulfillment etc. Tangible product: comprises of the formal offer the product as set out in the brochure. For e.g.: inclusion of breakfast, facilities like television, swimming pool etc. Augmented product: it expresses the idea of value added over and above the formal offer. For e.g.: free entrance tickets to local attractions, complimentary bottle of wine on arrival. All these components help in identifying the images and perceptions of the tourist products as well as tourist organizations. PRICE The objective of pricing is to fetch a target market share, to prevent competition, and to take care of the price elasticity of demand. Methods Of Pricing In Tourism Industry. Service Sector Management: BBA-III. - 32 - Cost based pricing: the price charged must be sufficient to cover fixed and variable cost to have a reasonable return on investment. Organization resort to price fixation at marginal cost to attract more customers. Demand based pricing: refers to balancing costs and revenues. This pricing will suit to the seasonal characteristics as at peak times many leisure facilities have excess demand so firms use high price as tactic. Competition based pricing: in case of new tourism product, if the strategic objective is market penetration, then prices must be set very competitive to attract more customers. In case of niche strategy, the price should portray this aspect complimented with additional benefits of the service offer. PROMOTION The promotion mix plays a vital role as the users of service feel a high degree of involvement and uncertainty about the product and their role in the buying process. The important aspects of promotion are advertising, publicity, sales support and public relations. Advertising the messages attractively and sales promotion activities in tourism can be effective when supplemented by publicity and personal selling. The word-of-mouth promotion is an important tool in tourism marketing. Apart from that, incentives to be given for a short period of time like price cuts, discounts, free gifts etc. and circulating brochures to the customers are also an important tool in tourism marketing. PLACE In most of the cases the tourist destinations may be natural, historical attractions. But, infrastructural facilities, transportation, communication are important for the development of a tourist center. Place or distribution management is concerned with two things – availability and accessibility. To extend the number of sale or access, away from the location at which services are performed or delivered. To facilitate the purchase of service in advance. Different distribution strategies may be selected to reflect the company’s overall objectives. The tourist products are bought by the travel agent or tour operator. However, the late Best mode of reaching the tourist is through internet. Ticket booking can be done through the internet and payment is made with credit card. PEOPLE We can’t deny the fact that sophisticated technologies have been successful in accelerating the pace of development. We also agree with this view that new generation of information technologies have simplified the task of decision makers. At the same time we also have to accept the fact that the sophisticated technologies can’t deliver goods to the development process if the employees operating and maintaining these technologies are not of world class. Technologies need due support of human resources who invent, innovate and develop technologies. Like other industries, the tourism industry depends substantially on management of human resources. The tourism industry is an amalgam of the services of a lot of people and hence this industry cannot work efficiently if the travel agents, tour operators and travel guides lack world class professional excellence. Of course the offices of travel agents depends on the new technology but after all employees and the other staff contribute significantly to the process. The travel guides need professional excellence since the projection of a positive image regarding a destination in particular requires their due cooperation, failing which even the world class services offered by the travel agents are found meaningless. The tour operators also need to manage human resources efficiently. In the management of people, the related organizations are required to think in favour of developing an ongoing training program so that we find a close relation between the development of technologies and the quality of personnel who are supposed to operate and maintain the same. They need a lot of credentials to fulfill the expectations of the customers. The organization has to make the environmental conditions conducive and focus has to be laid on the Service Sector Management: BBA-III. - 33 - incentives to the employees for energizing the process of performance orientation. Employee orientation requires due weightage to efficiency generation, value-orientation and perfection. In the tourism industry the travel agents and the travel guides are the two most important people who speak a lot about the industry. Hence it is imperative that they have to be at their best at all times. Travel guides especially, are expected to have a lot of patience, good sense of humor, tact to transform the occasional tourists into habitual ones, thorough knowledge of the places, linguistic skills etc. PROCESS The operation process of the tourism firm will depend on the size of the tourist firm. The steps involved in the delivery of the tourist product are as follows: Provision of travel information- refers to information regarding the travel is provided at a convenient location where the tourist seeks clarifications about his proposed tour. Preparation of itineraries- it is composition of series of operations that are required to plan a tour Liaison with providers of services-contracts have to be entered with the providers of services like transportation companies, hotel accommodation etc., before any form of travel is sold to a customer. Planning and costing tours- the task of planning and costing the tour will depend on the tour selected as well as individual requirements. New concepts in Tourism Industry: Eco Tourism: Eco Tourism is an enlightening travels experience that contributes to the conservation of the eco system while respecting the integrity of the host communities. Productivity /quality Productivity in services refers to how you transform the inputs into outputs, which are valued by the customer. Quality refers to the degree to which the service satisfies the customer by meeting their wants and expectations. Productivity and quality need to be omnipresent for the industry to complete its service obligations aptly. Only if your firm is productive and the quality meets the requirements of the customers can your performance be graded as excellent. Here are five key things to consider when developing the performance strategy for your business. Have you found a way to fit marketing into your schedule? Do you keep track of both your long and short-term projects (including marketing projects), and review that list daily? Do you have a way of combating procrastination and delay? Do you maintain the highest standards of integrity and excellence? Are you continually working to improve your skills in all areas of your business? PROMOTION Includes advertising, publicity, Sales, public relations etc. Creation of awareness has a far-reaching impact. The tourist organizations bear the responsibility of informing, persuading and sensing the potential tourists in a right fashion. The marketers need to use the various components of promotion optimally so that they succeed in increasing the number of habitual users. Promotion helps in maximizing the duration of stay, frequency of visit by offering new tourist products in the same country to areas, which hitherto have remained untapped or partially tapped. The various dimensions of tourism promotion are as follows: Advertising: Advertisement helps in furnishing important information to the actual and potential tourists. Its coverage is wide. Advertising is aimed at the public to create awareness of the travel offers available on a resort and its attractions to influence their business decisions. Intangibility can be compensated with the help of visual exposure of scenes and events. We can project hotel bedrooms, well-arranged restaurants and cafeterias, swimming pools etc. Service Sector Management: BBA-III. - 34 - Publicity: It focuses attention on strengthening the public relations measures by developing a rapport with media people and getting their personalized support in publicizing the business. It helps in projecting the positive image of tourist organizations since the prospects trust on the news items publicized by the media people. Eg. Kumarakom in Kerala after Prime Minister A B Vajpayee’s visit. The publicity programme include regular publicity stories and photographs to the newspapers, travel editors, contact with magazines on stories etc. There are different groups in publicity, such as advertising publicity, projected publicity, structural publicity and personal publicity. Sales promotions: Sales promotion measures are the short term activities seeking to boost sales at peak demand periods to ensure that the firms obtain its market share and are used to help launch a new product or support an ailing or modified one. The tool of sales promotions is designed to appeal particularly to those customers who are price-sensitive. There are a number of techniques to promote sale and the tourist professional need to use them in the face of their requirements vis-à-vis the emerging trends in the business. Eg. In the tourism industry, a travel company offers give-always to their clients, such as flight bags, wallets for tickets and Forex and covers of passport. The hotels offer a number of facilities like shoe shine clothes, first aid sewing kits, shower caps and shampoo. Further, the VIP clients also get fruits and flowers in their rooms. Thomas Cook offered 3 tier sales promotion based on price and one more novel technique as detailed below: Cook agreed to match the price of any holiday they sold which was known as price promise. Money back guarantee to the clients who purchase the product or any tour operator known as trading charter. Matching of customers need with a particular holiday known as formal guarantee. A business travel challenge in which the details of expenditure on staff business travel booked through other agents over a 3 months period were submitted by companies to Cook, specially to calculate expected savings, provided the bookings are made through them. Word-of-mouth Promotion: Most communication about tourism takes place by word-of-mouth information, which in a true sense is word-of-recommendation. In the tourism industry it is found that the word-of-mouth promoters play the role of a hidden sales force, which instrumentalize the process of selling. The high magnitude of effectiveness of this tool of promotion is due to high credibility of the channel, especially in the eyes of the potential tourists. The sensitivity of this tool makes it clear that tourist organizations need to concentrate on the quality of services they promise and offer. The marketers or the tourist organizations need to keep their eyes open, identify the vocal persons or the opinion leaders and take a special care of them so that they keep on moving the process of stimulating and creating demand. Personal Selling: Personal Selling is based on the personal skill of an individual. The oral representation in conversation bears the efficacy of transforming the motivation into persuasion. The travel and hotel business depend considerably on the personal selling. The development of travel and tourism has been possible due to well-educated and trained sales personnel. The development of tourism business has been influenced by the services rendered by the travel agents and travel guides since they work as information carriers. Personal selling is the personal presentation of a tangible product or intangible services or ideas to the personal customers. It is important to mention that in the tourism industry, the personnel who attend tourists form an essential ingredient of the product, such as sales personnel are found responsible for dealing with customers behind the counter, the resort representatives cater to the need of tourists when they reach the destination etc. all of them play a vital role in ensuring that the tourism products satisfy the tourists. The phrase- the customer is always right applies specifically to the tourism industry. No reduction in price would compensate for impolite and indecent travel guide, a solvent waiter and a surly or a haughty coach driver. These facts are testimony to the proposition that the travel business is linked with the performance and behaviour of sales personnel or travel staff. Telemarketing: it is a method of selling in which a professionally sound telemarketer expands the business. The quality of technology and the communicative ability of the telemarketers determine the magnitude of success of this component. In tourism, the travel agents, offices of airways, receptionist, and secretaries can’t work efficiently if the telephonic services are not up to the mark. This makes a strong advocacy in favour of recruiting a person considered to be Service Sector Management: BBA-III. - 35 - professionally sound, personally committed sales personnel having an in-built creativity, innovation and imagination. PHYSICAL EVIDENCE It is a very important factor for the travel and tourism industry. This marketing p is important in 2 distinct ways: 1) as the environment in which the sales takes place 2) the environment where the product is consumed Explanation of the first case When the purchasing of the product is taking place, however the customer cannot be sure whether they will enjoy the product or not. In the mean time their expectations and emotions are influenced by factors like layout of the room, the furniture, noise level, temperature, lights and other factors like the brochure of the company. In case of customers who by electronically the appearance of the website is the physical evidence. Explanation of the second case In the travel industry where the product is being experienced s particularly important in securing repeat business thus extensive facilities that prove to be physical evidence are provided to lure and woo the customer The tangibles include flat beds in business class, Wi-Fi connection in hotels, customized meals on board, tele checking 8hrs booking in hotels, hotels providing laptops on request, internet access as complimentary for the corporate packages. The critical incidences in this process are Understanding the customers needs and expectations from the holiday or business tour which ever he or she is opting for Making an apt travel plan and route adhering to the requirements of the customer Execution of the planned itinerary is the most critical one. As a company has committed some thing and this is the time when the customer is actually experiencing the entire product and if any one of the commitments don’t materialize then the zone of tolerance is affected and lot as it is already low because the customer on a tour whether leisure or business expects perfection. Major players in tourism industry: These players can be divided into 2 1. The ones, which take the local residents out of the country 2. The others, which get the foreigners into the country. For eg: SOTC SOTC floated a new package called “Brahman Mandal” aimed at Marathi speaking population and “Vishwa Darpan” aimed at Hindi speaking population of the country. This kind of segmentation will enable the companies to target effectively to boost their revenues. In fact, SOTC business improved substantially in Mumbai & Pune circles after the announcement of these separate packages. Factors affecting tourism industry: 1. Cross border terrorism in Jammu & Kashmir 2. Terrorist Attack in April 1999 3. 11th September Attack on US 4. Gujarat riots SWOT Analysis: Strengths: Service Sector Management: BBA-III. - 36 - India a culmination of deserts, forests, mountains, beaches& it has a diversity of culture i.e. a blend of various civilizations & their traditions, a number of archeological sites & historical monuments. Weaknesses: Lack of adequate infrastructure & improper marketing of Indian tourism abroad. Opportunities: Growth of domestic tourism and special packages offered. For eg: Thomas Cook says “Travel Now Pay Latter.” Affordable traveling at leisure, plenty of job opportunities. Threats: Economic conditions and political turmoil in other countries affects tourism. Aggressive strategies adopted by other countries like Australia, Singapore, in promoting tourism. Current scenario: Growth in domestic tourism in the country during the last one-decade 146 million tourist visits in 2000. Tourism provides enormous opportunities for employment generation. 9.3 million in India for every 10 lakh invested in hotels/restaurants. Future scenario: The industry body, Confederation Of The Indian Industry (CII) has a vision for tourism in India called “Tourism Vision 2020” CII expects to host 40 million tourists by then & the tourism economy contributing Rs.1tn. Problems: 1. Lack of Infrastructural facilities. 2. Lack of reasonable priced accommodation. 3. Tax burden for industry leaders. For eg: for every $ spent in India by a tourist he pays as much as 27% in taxes on average with figures going upto 35% in states such as West Bengal, but for other major global destinations the tax burden is only in the range of 4-8% 4. Along with expenditure tax, tourist has to pay service tax, sales tax, and luxury tax. PEST Analysis of the Industry: Environmental influences can be analysed by using the PEST analysis. Political/Legal: Political factors are the main driving force of the industry. Govt. support & co-operation to Indian Tourism Industry, railways and roads, hotel industry, airline industry, tourist operators. Downfall of tourism industry because of unconducive political environment eg Kashmir, Legal: Law is different for different country & is the major determinant for the industry. “Tax paid by tourists in India is the highest in the world. Indian hotels charge about 40% tax compared to other Asian countries where it varies between 3% and 6%". Economic: The criteria here is the more the people spend the more the industry grows. As we are concentrating on the International tourists, this has led to the tourism boom. Increase in spend has led to increase in the number of luxury hotels, & increase in air industry. Social: The general perception for tourism destruction of the social fabric of a place. The more the tourists coming at the place the more the risk of that place loosing its identity. Service Sector Management: BBA-III. - 37 - Technology: Better technology in cheaper cost to remote and inaccessible area. It can help the country to get connected to the world. It is very much necessary to have better technology to have that place on world tourist map. Frequent flights. Various innovations in the tourism Euro rail: Euro rail International is one of North America’s leading sources for European rail. The main feature is that it has a concept wherein a passenger can buy a single ticket and travel all over Europe without any stoppages as this railway line covers the entire Europe almost up to Russia. Palace on wheels: This concept is very much prevalent in the state of Rajasthan where people come to experience the historical palace, and royal way of living. in this every thing is made available in the coaches of train so as to make the trip exciting. Ring route: this is one plan in mass rapid transit system, which is being developed in thane district to make transportation better. It will be 16.2 Km long. This will help the commercial as well as the industrial sector. It will transport more economical, efficient and environment friendly. Cruise liners: in this era people try different forms of travel cruise is one such, in India many cruise liners have come to existence like star, Virgo etc. and every Childs dream Disney cruise. Safari: exploration of lesser-known area. Tourists are more attracted towards it as this gives them adventure. Safari is generally via road. There is some destination where one has to go by foot long distance. POTENTIAL FOR GROWTH OF TOURISM Although India is at the lowest ebb in international tourism (only 0.34% of global tourist traffic), there are several distinguishing features that would help in achieving its set goal. Some of these are given below: The rate of growth in tourist traffic to India has been greater than the global average. The average duration of stay of foreign tourist in India is one of the highest in the world. On an average, it exceeds 27 days in the case of non-package tourist and is 14 days in the case of package tourist. The major share of the international visitors emanates from West Europe and North America. The tourists on package tours spend nearly 65 per cent of their expenditure on shopping. There is high degree of seasonality in the foreign tourist traffic. The hotels and tourism related industry has been declared as a "High Priority Industry" for development. CUSTOMER PROFILE & MARKET SEGMENTATION Users Of Tourism Services The users of tourism services can be categorized in a number of ways. One such way of classifying the users is by dividing them into categories such as General, Sex, Region, Education, etc. General: Domestic, Foreign Kids, Teens, Youths, Seniors, Students, Executives, Artists Politicians, Movie stars Sex: Men, Women Region: Rural, Urban Education: Literate, Illiterate Service Sector Management: BBA-III. - 38 - Status: Rich, Poor Profession: Executives, Academics, Sportsmen, Artists Occupation: White collar, Blue collar Another method of classifying users of tourism services is on the basis of the frequency of usage of services. Non-users: They lack the willingness, desire and ability (income & leisure time). Potential Users: They have the willingness but the marketing resources have not been used optimally to influence their impulse. Actual Users: They are already using the services generated by the tourist organizations Occasional Users: They have not formed the habit of traveling Habitual Travelers: They have formed a habit and avail of the services regularly. Need For Segmentation Consumer behavior can be defined in psychological terms as the whole range of the generation of wants and their transformation into buying or using decisions. Users have values, perceptions, preferences and expectations, which are the result of environmental influences. There are a number of factors that influence the behavioral profile of consumers. In recent years, the users have become more discriminating in their using habits and therefore their needs for different services, products and brands change constantly. This makes it essential that the marketers analyze their behavioral profile and undertake segmentation so that they know the level of expectations. In a nutshell, tourist organizations need to undertake segmentation in order to simplify their task of creating and stimulating demand. In this way they can identify the potential tourists, transform them into actual tourists and further into habitual tourists. Segmentation Though there are a number of bases for segmentation of tourists, one of the most important is Lifestyle. Traveling decisions are fantastically influenced by changing lifestyles. They are also affected by other factors such as level of income, availability of leisure time, etc. Such segmentation is useful when deciding the offerings to target a particular segment. For example: The mass market consists of vacationers that travel in large groups and prefer all-inclusive tours. They are generally conservative. The popular market consists of smaller groups going on inclusive or semi-inclusive tours. This group includes pensioners and retired people. The individual market consists of chairmen, senior executives, etc. As the lifestyle changes, consumption of services might change. For example, a newly married couple might prefer romantic holidays, but once they have children they would prefer family vacations where there are plenty of activities to entertain kids. Teens and youth might prefer adventure holidays whereas senior citizens would probably prefer more relaxing vacations. Unique Characteristics Of The Tourism Industry Inflexibility: The tourism industry is highly inflexible in terms of capacity. The number of beds in a hotel or seats on an airplane is fixed so it is not possible to meet sudden upsurges in demand. Similarly, restaurant tables, hotel beds and airplane seats remain empty and unused in periods of low demand. The seasonal nature of tourism activity exacerbates this problem. Offering attractive and discounted prices is strategy to overcome this problem. Perishability: Tourism services are highly perishable. An unused hotel bed or an empty airplane seat represents an immediate loss of that service as a means of earning profit. This has an impact on overall industry profitability. Fixed location: Tourism destinations are fixed locations so effort must be concentrated in communicating the facility to the potential consumer. A consumer can conveniently Service Sector Management: BBA-III. - 39 - watch a Hollywood movie at the local cinema but has to be persuaded to travel to India to see the Taj Mahal. Relatively Large Financial Investment: Every modern tourist establishment and facility requires large investment, frequently over a long time scale. This means that the level of risk and the rate of return are critically important to tourism management. Tourism Services are high contact services, as people interact with people at virtually EVERY stage of the way. Tourism services are very people-oriented services, and the service people are plenty and have high contact with the consumers. The consumer interacts with a myriad of service people starting from when he books his ticket and throughout the course of his holiday. Service Sector Management: BBA-III. - 40 - HOSPITAL MARKETING Major inputs of health care industry The major inputs of health care industries are as listed below: I. Hospitals II Medical insurance III. Medical software IV. Health equipments Health care sector in India: Conceptual Framework India’s healthcare sector has made impressive strides in recent years. It has transformed to a US$ 17 billion industry and is surging ahead with an annual growth rate of 13% a year. The healthcare industry in India expected to grow in size to Rs 270,000 core by 2012. The healthcare industry employs over four million people, which makes it one of the largest service sectors in the economy of our country. Healthcare is dependent on the people served; India’s huge population of a billion people represents a big opportunity. People are spending more on healthcare. PEST ANALYSIS Political factors Most of the healthy nations are also wealthy nations. In India even after 53 years of independence we all have to accept that government has failed to provide basic healthcare. Healthcare is the neglected field, only meant for slogans by our politicians. To improve healthcare facilities we have to provide special assistance to private healthcare sector. The reality in private healthcare sector is that as an industry it has long gestation period and so most of the bigger projects fail. Government has to give certain concessions to private health sector. It can be in the form of free land for small hospitals at district levels or concession in power tariff. Government later on gets back revenue in the form of tax when these institutions start making profits. Concessions can be limited to first five years or so. Maharashtra government is playing an important role in the development of the hospital sector. Economic factors The Indian healthcare is the next boom in the country after the IT euphoria. Setting up hospitals is not an easy task. The amount of hospitals in India is very less when compared to the other developed countries. Even the urban areas do not have enough medical facilities. In the rural areas one village has only one doctor, who may not be very well qualified. The other governments of other states should take up a cue from the Maharashtra government, in setting up similar Joint ventures all over the state with the assistance of World Bank. The World Bank can make available funds of around Rs 700 crore for state health systems and development projects. The people in India do not avail of the hospital facilities very soon. This is because of the high cost related to it. However this may all change because of the increasing deployment of third party payment either in the form of Medical and Allied Insurance, or in the form of reimbursements from the State. This in turn will increase the employment opportunities to many people. Social Factors 1. Certain percentages of beds have to be kept for poor people. E.g. in Mumbai 20% of beds has to be kept reserved for poor people. 2. Look after the needs of local poor people. 3. Open counseling and relief centers. 4. Teach hygiene, sanitation among the poor masses. Service Sector Management: BBA-III. - 41 - 5. Safe disposal of hospitals wastes like used injection needles, waste blood etc. and taking due care of environment. 6. Spreading awareness about various diseases through campaigns and free medical check ups. 7. In brief the social aspect of hospitals industry is to see that latest treatment and medicines are available to people at large at concessional rates or free of cost and that its activities are not only restricted to rich people. Technological Factors We are witnessing Information technologies transforming the way health care shall be delivered. Innovations such as computer based hospital information systems, medical records; decision support systems, health information networks, telemedicine, real time image transfers and newer ways of distributing health information to consumers are beginning to affect the cost, quality, and accessibility of health care. The technologies today can support vast databases, network communications, quick distribution and reliable image transfers. Types of hospitals The classification of Hospitals on the basis of objective, ownership, path and size. 1. On the basis of the OBJECTIVE there are three types: Teaching cum research for developing medicines and promoting research to improve the quality of medical aid. General hospital for treating general ailments. Special hospitals for specialized services in one or few selected areas. 2. On the basis of the OWNERSHIP, there are four types: Government hospital, which is owned, managed and controlled by government Semi-government hospital, which is partially shared by the government. Voluntary organisations also run hospitals. Charitable trusts also runs hospitals. 3. On the basis of PATH OF TREATMENT, there are: Allopath which is the system promoted under the English system. Ayurved, which is based on the Indian system where herbals are used for preparing medicines. Unani Homeopath Others 4. On the basis of the SIZE, there are: Teaching hospitals – generally have 500 beds, which can be adjusted in tune with number of students. District hospital – generally have 200 beds, which can be raised to 300 in contingencies. Taluka hospital – generally have 50 beds that can be raised to 100 depending on the requirement. Primary health centres – generally have 6 beds, which can be raised to 10. I’s of hospital industry Intangibility Intangibility indicates that the service has no physical attributes and as a result, impossible for customer to taste, hears, feel or smell before they actually use it. Hospital industry is where the customers (patients) get treated for physical problems they have. The customers can’t really realize the service provided until they get well. For this they have to provide good supplementary Service Sector Management: BBA-III. - 42 - services.The only way they can provide tangible clues to make the service provided a success. For e.g. the hospitals provide extra facilities like television, or then friendly personnel’s can make a difference. Inconsistency It’s also referred to as heterogeneity or variability. The inconsistency occurs largely because of Different service providers perform differently on different occasions. Interaction between customer and provider may vary from customer to customer. Standardization is hard to maintain. Every doctor is not the same and may not give the same diagnosis. Also a patient may not each diagnosis in a different way. Also since the quality of work done can be determined only after the service is performed the providers have to be well trained in case of performing the service process. Inseparability Inseparability means that the service cannot be separated from the creator-seller of the service. In fact there are many services that are created delivered and consumed simultaneously through interaction between customer and service producers. Here too the customer, i.e. the patient has to come up to the hospital to get the treatment. The customer has to be present when the service is performed. In fact in case of hospitals the service is created and delivered simultaneously. The type of service to be provided depends on the customer. Inventory Services can not be easily saved, stored or inventoried. This is all due to the perishable nature of the services. Also there’s cost also associated with the carrying of inventory. Here the costs are more subjective and are related to capacity utilisation for e.g. if a doctor is available but there’s no patient during that period, the fixed cost of the idle physicians salary is a high inventory carrying cost. Also due to demand fluctuations the services cannot be stored. E.g. there’s a lot of rush at the dentists clinic in December and January as that’s the time when there are lots of tourist visiting India. Justification for marketing hospitals Marketing in Hospitals is unethical was the frequent refrain in the eighties, when very few hospitals realized that it was necessary to incorporate marketing as an integral function in the hospital operations. But the major argument at that time lay in understanding whether this professional orientation was really required for its viability, profitability and sustainability. This argument however became favorable in the late nineties as corporate companies like Wockhardt and Max India started venturing into the hospital industry, apart from the ongoing mergers and acquisitions that were already taking place at that time. Hospitals started building tie-ups with corporate clients, as there was already an abysmal utilization of resources in the existing hospitals. In addition to the above a major factor that contributed to the acceptance of marketing in hospitals was an increase in the delivery of services. Perception of patients was another important consideration for hospitals, as they felt that the patients would take them as profit oriented organization rather than service-oriented organization. Ultimately, marketing was accepted only by a few while others discarded the concept Hospitals who accepted marketing also carried out their function by concentrating around corporate clients. Lately it has been felt that many Indian hospitals have a dilemma regarding the functions of marketing. In an era where hospitals are experiencing a major shift in their clientele, they are worried more about the patients’ perception of hospitals and therefore the concept of brand restructuring and brand engineering is vital. As hospitals spend millions of rupees in technology and infrastructure, it becomes necessary, that they attract patients and generate funds. In order, to do the same, the hospitals follow various marketing and brand building exercises. Some of them are listed below: 1. Many hospitals have eminent personalities from the industry in their Board of trustees. This indirectly leads to increase in, inflow of patients, working in the companies of these Trustees. Service Sector Management: BBA-III. - 43 - Besides the presence of eminent personalities creates a sense of confidence in the minds of people. 2 Private hospitals can attract their shareholders by offering discounts. For example, a special discount of 20 percent on all preventive health checks is offered to all shareholders of Apollo Hospitals Limited. 3. Hospitals have a long-term understanding with PPO’s (Preferred Provider Organization), which further have understanding with corporates. Any case of sickness found in the employees of these corporates refer them to the PPO’s which further sends them to the hospital for checkups and treatment. 4. The success rate of crucial operations and surgeries, reflect the technological and knowledgebased edge of the hospital over the’ competitors. Such successes are discussed in health magazines and newspapers, which become a natural advantage for the hospital. 5. Some hospitals by means of their past track record have created a niche market for themselves. For example, Hinduja is known for its high-quality healthcare at reasonable rates, whereas Lilavati Hospital is known for its five star services. 6. Hospitals hold seminars and conferences relating to specific diseases, where they invite the doctors from all round the country, for detailed discussion. This makes the hospital well known amongst the doctors, who could in future refer complicated cases to the hospital. 7. Hospitals can also promote medical colleges. This helps them to generate extra resources in form of fees using the same infrastructure. Marketing Mix PRODUCT The service product is an offering of a commercial intent having features of both tangible and intangible seeking to satisfy new wants and demands of the consumer, hospital industry is action oriented and there is a lot of interaction with the customers. The service products of the hospitals have the following features: Quality level Supporting services play an important role having the quality of Medicare. These services, which include laboratory, blood banks, catering, radiology and laundry, in a true sense determine the quality of services made available by medical and paramedical personnel. Accessories This is a very good way of segmenting customers. Many hospitals provide additional services such as catering, laundry, yoga sessions, cafeterias, etc. for the customers who are willing to pay extra. Hospitals have different wards-General and special. Certain hospitals provide services for the family members of the patients –when they are not the same-city for accommodating and catering. Packaging It is the bundling of many services into the core service. E.g. Apollo hospital offers a full healthcare checkup to the patients. Product Line Hospitals through their services offer many choices to the patient and cover a wide range of customer needs. For example: Apollo has a dental department, cardiology department etc. and within the dental department it has dental surgery, root canal, etc. Brand name Hospitals, to differentiate themselves and their services from others use a brand name. The intangibility factor of the service makes it all-important for the hospitals to do so. Government Hospitals: This as a product is fairly good. In some hospitals like J.J. hospital, Mumbai they provide quality services at cheaper rates and also is technically well equipped. But most of the Service Sector Management: BBA-III. - 44 - government hospitals in spite of government grants do not provide quality service. Hence it is perceived as of low quality. Private hospitals: Private hospitals like Bombay Hospital, Apollo are well equipped and the services provided are of good quality but they charge huge price for it. Hence the middle-income group perceives them as elite class hospitals. PLACE Incase of hospitals the location plays a very important role. The kind of services a hospital is rendering is also very important for determining the location of the hospital. Example: Tata Memorial Hospital in Mumbai specializes in cancer treatment and is located at a center place unlike other normal hospitals, which you can find all over other places. In a country like India which is geographically vast and where majority of the population lives in the rural areas place factor for a hospital plays a very important role. A typical small village or town may be having small dispensaries but hey will not have super specialty hospitals. For that they will have to be independent on the hospitals in the urban areas. PEOPLE Under hospital marketing mix people includes all the people involved in the service providing process which includes doctors, nurses, supporting staff etc. the earliest and best way of having control on the quality of people will be by approving professionally sound doctors and other staff. Hospital is a place where small activity undertaken can be a matter of life and death, so the people factor is very important. Under hospital marketing a right person for the right job has to be appointed and they should be adaptable possess versatility. The patients in the hospitals are already suffering from trauma, which has to be understood by the doctors and staff. The people of the hospital should be constantly motivated to give best of their effort. Government Hospital: In Indian government hospitals except a few almost all the hospitals and their personnel hardly find the behavioral dimensions significant. Hence even if the patients get the correct treatment they are often dissatisfied with the behavioral pattern of the staff. Private Hospital: They have pleasing manners and behave softly with the patients. They provide timely care and are present always in times of need. PROCESS Process generally forms the different task that are performed by the hospital. The process factor is mainly dependant on the size of the hospital and the kind of service it is offering. Government Hospital: There is lot of paper work involved in the whole process. Hence the whole process from admission to discharge is tedious. Private Hospital: With the advent of information Systems in hospitals all the paper work is reduced and the process is smooth and fast. PHYSICAL EVIDENCE It does not play an important role in the health care services, as the core benefit the customer seeks is proper diagnosis and proper cure of the problem. Service Sector Management: BBA-III. - 45 - Physical evidence can be in the form of smart buildings, logos, mascots etc a smart building infrastructure indicates that the hospitals can take care of all needs of the patients. Government Hospital: Government hospitals have a huge building, but are not properly maintained; hence it creates a bad impression among its patients that the hospital is unhygienic. Private Hospital: Private hospital like Bombay Hospital has got a smart building, which helps, in developing the minds of the people, the impression that it is the safest option among the different hospitals available to the people. PROMOTION Hospitals for promotions use either advertisements or P.R or both after taking in to consideration the target customers, media type, budget and the sales promotion. The health care field has become very competitive. Although one fourth of our population stays in urban India, three fourth of the total doctors have engaged themselves in this part. Word of mouth plays an important role during information acquisition stage of the customers, as there are no objective performance measures to judge the various alternatives available to them. Therefore satisfied past patients of the hospital can bring more number of patients to that hospital than a number of advertisements. In a competitive market place the images of the firms will affect their competitive standing. One factor that is likely to have significant impact of the health care scene is the growing hospital chains such as Apollo, Birla health centers, etc. artificial heart transplants and other complex operations although are few in number and generate a small potion of the total revenue, they help in generating word of mouth which health care providers are actually interested. Many of these companies are spending a lot in corporate advertising for image building. Government Hospital: They do not undertake major promotion programmes and hence are not very popular among the masses. Private Hospital: They undertake extensive promotion. Along with this they undertake massive complex operations which if successful create a good brand value of the hospitals. PRICE Pricing in Government / Trust Hospitals In the Indian setting where a number of persons are below poverty line it is challenging task to formulate a pricing strategy, which is successful in serving the social interests and generating profits. Hospitals need to invest a lot in sophisticated equipment and technologies to improve the quality of medical aid. Even the affluent sections of the societies expect; low cost services form the social institutions in general and hospitals in particular the task of services innovative in line with latest developments in field of physical sciences is difficult. It is due to this that the most government hospitals are in deplorable condition. The exchecker finds it difficult to finance hospitals and further, the government regulations also close doors foe generating finance from internal sources. The ultimate sufferers are the society and specially the poorer sections. Since the affluent sections have the options to avail the expensive medical services made available by the hospitals. The societal marketing principles make can advocacy in favor of protecting the public interests but it not meant that the hospitals have a uniform pricing/fee structure for all the users. The fee strategy for all the Service Sector Management: BBA-III. - 46 - hospitals should be in proportion to the incomes of users, which would engineer a sound foundation for qualitative or quantitative improvements. For social institutions like government hospitals a discriminatory fee structure is preferred since it provides even the weaker sections of society, an opportunity to avail the quality medical services. This enables hospitals to innovate services to keep pace with the latest developments in the medical sciences. Government / Trust Hospitals FEE/CHARGE 1. 2. FREE (For no income group) Subsidized (For low-income groups) Discriminatory Pricing 3. Cost + losses from 2 (Middle-income group) 4. Cost + surplus to make up the losses of 1. Pricing in Private Hospitals Cost based pricing: Price = Direct costs + overhead costs + profit margin. In hospital services, this method is cumbersome because the tracking and identification of costs are difficult. Fee for services, however can be used by doctors. Notwithstanding, some hospitals in the private sector follow this method. Competition based pricing: using other price as an anchor for the hospitals price, heterogeneity of service across and within providers makes the approach complicated. Demand based pricing: Cost based pricing and competition based pricing do not consider certain criteria. Demand based pricing involves price setting consistent with customer perception of value. Prices are based on what will par for the services provided. Perceived Value Service Sector Management: BBA-III. - 47 - What customer perceive about value Service offered accordingly Could be offered on weekends Health spas in off season Value is low price Differentiated as incentives Free consultation by dentist/doctors Prestige pricing-health club Value is everything I want in service Bombay hospitals of Arabs (value is high quality) Value is the quality I get for the price I pay Market segmentation pricing based on affordability to pay, value is affordable quality Value is all that I get for what I give Value is getting excellent treatment in shortest possible time e.g. treatment in Mumbai hospital, Breach Candy, Jaslok. Perceived value is the customers overall assessment of the utility of a service based on perception of what is received and what is given. Differential pricing in the hospital industry happens Externally (between 2 hospitals) Internally (within a hospital) Externally: Between two hospitals, even to provide the same treatment, the prices differ. Even though the operation to be done might be the same, pricing differs due to the kind of service provided pre and post operation. Cost is associated with the kind of service you provide, and so the hospital is bound to charge the patient for it. Internally: There is a price differentiation even between the two wards of the same hospital. There is difference between the general ward and special ward where the rooms are air-conditioned and extra services are provided. Thus the pricing would be different. Even the doctors visiting fees/consultation charges are different. Sometimes if the patient is very poor then the doctor may halve his fees. In a hospital the process is divided into the following phases: The joining phase, The intensive consumption phase, and The detachment phase and feedback. Now we will be considering the process blueprint of an Emergency / Police Case Patient brought in emergency to the hospital Police Case Inform the local police Service Sector Management: BBA-III. Non - Police Case Patient rushed to the Emergency - 48 - Police arrives Inquiry by the police at the hospital Statement of the patient Attended by the doctors Patient stabilizes Relatives/patients have to do the paper work, pay the deposits and complete all the formalities of the hospital. Price and quality ‘Price is the indicator of service quality’. It is an attraction as well as a repellent variable. Customers use price as indicator of quality depends on many factors including other information available to him. When service cues to quality are readily accessible when brand names provide evidence of reputation of hospital, customer may use their cues instead of price. Otherwise they think that the price is the best indicator of quality. It should convey appropriate signal regarding quality. Pricing too low can lead to inaccurate inferences about the quality, pricing too high can set expectations that may be too difficult to match in the delivery. Price is used to judged quality because of the experience and credence properties of services as opposed to goods. Excellent hospitals like Mayo Clinic, Massachusetts General, TMH, and Sloan Kettering are a mega brands. They have a great brand reputation and can charge a premium based on sheer perception of quality because of socio-economic issues, poverty levels, government owned hospitals cannot think of profit objectives. It is a social marketing process of enhancing the well being of individuals. Off late however the government has proposed to state government that those who are above poverty line should pay the cost for treatment. In private hospitals, where the profit is most important objective, premium can be charged. The price paid by customers depends on how he perceives the quality of service. E.g. Bombay hospital, Breach Candy and Jaslok they have a high reputation for quality services. The services marketing triangle HOSPITAL DOCTOR PATIENT Company: Here, the hospital is the company that dreams up an idea of service offering (treatment) which will satisfy the customer’s (patient’s) expectations (of getting cured). Customer: The patient who seeks to get cured is the customer for the hospital as he is the one who avails the service and pays for it. Service Sector Management: BBA-III. - 49 - Provider: Doctor, the inseparable part of the hospital is the provider, as he is the one who comes in direct contact with the patient. The reputation of the hospital is directly in the hands of the doctor. A satisfied patient is a very important word of mouth promotion for the organization. Thrust Areas For Medicare Services A hospital is a center for tertiary medical care, & India is home to some of the largest hospitals in Asia. The latest treatment options should always be available at these centers as a beacon to guide the entire medical community while providing top-notch medical care to patients. Often a country’s medical prowess is judged by the condition of its hospitals. Here we will discuss in brief some of the latest developments in major hospitals in India. Aromatherapy at Apollo. Biventricular pacing. Bone bank at AIIMS. Hospital administration. Medical records management. Oxygen under pressure treatment at Apollo. Waste management. Telemedicine. Virtual Hospitals The future is bright Health care industry is booming all over the world. In the U.S. it is already the largest service sector and worldwide it is started to be a $ 4 trillion market by 2005. The corporate hospitals will play a positive role in the health care sector by taking the load off government hospitals, whose performance hasn’t been up to the mark. In the last 5 years, approximately 750 mergers acquisition have taken place in U.S.A hospitals major advantages of merging is more toward more integrated health-care systems, that can achieve economies of scale, by combining capacity& amalgamation of functions such as information technology, consultants, emergency transport, database & research& development. But health care is primarily a local market business & it very important to consider the following factors before going in for mergers: 1. 2. 3. 4. Relative sizes of the hospitals. Their geographical proximity. Strength of ties individual hospitals & physicians. Degree of unity in leadership structures of separate in The key to success appears to be a strong orientation to performance as well as standardization & integration work processes, functions, suppliers & investment but not necessarily on a centralized basis for example, Apollo in Chennai, Hyderabad & Delhi will be separated hospitals, post merger, but function will be centralized. More competition and therefore a more uniform pay structure there may be improvement in both quality & quantity of healthcare available in India. In India, telemedicine services are not very relevant as yet though with the increasing use of Internet, information regarding health & medicines is being increasingly exchanged. Thus, the most important modes of trade of healthcare services in the short run would be the category of service providers. Scope of health care services Ø gymnasiums Ø alternative medicine centers Ø spiritual cleansing centers. (like reiki, yoga etc) Service Sector Management: BBA-III. - 50 - INSURANCE MARKETING What is Insurance? Insurance is a contract between two parties whereby one party called insurer undertakes in exchange for a fixed sum called premiums, to pay the other party happening of a certain event. Insurance is a protection against a financial loss arising on the happening of an unexpected event. Insurance Companies collect premium to provide for this protection. A loss is paid out of this premium collected from the insuring public. The insurance Company act as a trustee to the amount collected through premium. Insurance is generally classified in three main categories, (i) Life Insurance, (ii) Health insurance and (iii) General Insurance To get insurance an individual or an organisation can approach to an insurance Company directly, through Insurance Agent of the concerned company or through Intermediaries. Benefits of Insurance 1. 2. 3. 4. 5. 6. 7. Safeguards oneself and one's family for future requirements Peace of mind-in case of financial loss. Encourage saving. Tax rebate. Protection from the claim made by creditors. Security against a personal loan, housing loan or other types of loan. Provide a protection cover to industries, agriculture, women and child. Reasons for buying insurance Insurance Buys Time and Money: People like to refer to insurance as time insurance, the reason being that insurance proceeds are paid to the insured's beneficiaries in case of death or on the maturity of the policy. The money proffered by insurance helps buy time to adjust to the change of circumstances. Insurance provides large amounts of cash that will keep the lifestyle for the survivors the way it was before the insured's death. Insurance Offers Peace of Mind: For the person who buys an insurance policy, it offers absolute and complete peace of mind. He or she knows that the decision made by him will provide sound benefits in the future, whether or not the individual may live to see it. The life insurance policy will subsequently prove this in the future if and when funds are needed. This is the guarantee of the insurance contract. Multiple Applications: The future is uncertain for each and every one. No one knows how long he or she will live. The investment benefit is paid to the insured's beneficiaries after his death or it can be used during the life as well. Life insurance policy owners can turn to the cash value of the policy in case of a financial emergency when all avenues are either blocked or denied. They know that they can avail of loans based on their insurance policies. Insurance policy owners can use the cash value of their policies to meet their long-term financial needs as well. They may have purposefully invested in insurance to use the cash in the policy for their children's future marriage expenses or higher education fees. Enduring Elasticity: Since life insurance is flexible enough to serve several needs, the insured can keep several long-term goals in mind once he or she invests in the insurance plan. The cash value of the policy can be allocated towards augmenting the monthly income during the retirement years. Leisure years should be turned into pleasure years. Permanent life insurance is designed on the concepts of long-term flexibility. Financial Security: The insurance policy offers contractual guarantees to people looking for Service Sector Management: BBA-III. - 51 - peace of mind when they buy life insurance. Life insurance offers complete financial security. The purchase of life insurance demonstrates concern for a family's future financial well being. Regard for Family: The purchase of life insurance clearly displays care and concern for the people the policy owner loves. Insurance is Safer: No financial institution can do what life insurance does. No industry can back its products with reserves and surplus as sound as those of the insurance industry. The proof of strength and safety that insurance companies have ensured even under the most adverse of conditions is a matter of pride for the entire insurance industry. For generation after generation, life insurance has been acclaimed as the very benchmark of security against which the other industries are measured. Insurance Market Segmentation In insurance industry, profiling is very important in determining premium rates. Typically, insurers collect every information available. However, analysing thoroughly is not feasible since the number of variables is normally large. The starting point is thus mass marketing. In mass marketing, the seller engages in the mass production, mass distribution and mass promotion of one product/ service for all buyers. A niche on other hand is a more narrowly defined group seeking a distinctive mix of benefits. Marketers usually identify niches by dividing a segment into sub segments. Also, in terms of product complexity, insurance products can be categorized into low complexity and high complexity products. Low complexity products: These are simple products with a standard set of covered risks, perils and hazards. High complexity products: They have a large number of riders and warranties and do not indemnify certain causes of loss. PRODUCT COMPLEXITY TARGET SEGMENT Niche Market Mass Market LOW HIGH Fire Insurance (different risk profiles 1. Weather Insurance for each), Marine Insurance 2. Product Liability Householder’s comprehensive Personal Accident Insurance Policy , Medical Insurance Pension Products The distribution strategy should vary according to the type of policy. Insurance products with low complexity can be sold through bank-assurance, but products with high complexity should not be sold through the same channels, as it would be very difficult (in terms of time, effort and cost) to train bank employees in understanding the finer details of the complex policies. Products with high complexity need a certain amount of customer hand holding in terms of explaining the terms, conditions, riders and warranties of the policy. In case of niche marketing, direct marketing can be used in the form of e-mails and direct calls through agents to specific customers belonging to the target segment. For high complexity niche products, spreading awareness and selling through financial advisors, consultants and brokers would also be a good strategy. Service Sector Management: BBA-III. - 52 - PRODUCT COMPLEXITY TARGET SEGMENT Niche Market Mass Market LOW HIGH Direct marketing through personalized e-mails Advertise in area specific journal with toll free numbers to set up appointments Agents 1. Bancassurance 2. Postal department 3. Agents 1. Well trained agents 2. Financial advisors/consultants 3. Brokers 1. Well trained agents 2. Advertise in newspapers with toll free numbers to set up appointments Market Segmentation in Insurance Households Industrial Sector Trade Sector Segment Sub Segment Institutional Sector Regional Wise Rural Sector Flower of Services Flower of services refer to a well-formed package of total services with all the supplementary services being well formulated along with the core services. The various petals of the flower are: Service Sector Management: BBA-III. - 53 - Information: A marketer needs to provide adequate information to his employees and his customers. This information is general information provided through various communication channels. In the insurance industry information is provided to the customers with the help of: o o o o o o Agents Seminars Web sites Print media Radio Television, etc. Consultancy: This is additional customized information provided to the potential customers by the service provider. In the insurance industry it is provided by company’s staff and agents. Example: In LIC when a customer enters asking of information about the policy, he is directed towards the assistant sales manager. Assistant sales manager will listen to the customer’s requirement and as per his requirement list the number of policies that are available. He will also ask the customer about the price and limit the number of options for the customer, so that he can easily choose the policy without confusion. Order taking: Order taking should be done without mistakes. In LIC order taking is generally done by: o By Agents o On Website o By Assistant sales manager directly in the office. Hospitality: Hospitality is a very pretty petal, reflecting pleasure at meeting new customers and greeting old ones when they return. Hospitality finds its full expression in face-to-face encounters. Service Sector Management: BBA-III. - 54 - In LIC customers directly come in contact with the sales manager. The customers are treated as guests. The sales managers of LIC are given special training of how to sell the policies to the clients. It is only in LIC that a customer can meet the chairman directly without any appointment. Safe keeping: It is in the process and procedures used by marketers to safe guard and to maintain secrecy. In LIC the data of the customers is very important. They feed the data of the customers in their Front and Application Program Software that is connected with all the branches of LIC. The data is only available with the sales people and not shown to any person. Exceptional: Exceptional service means service over and above customer’s expectations. LIC has the fastest claim settlement in the world thereby providing exceptional service. LIC also solves complains of the customers within 7days. Payment: The payment of premium is normally through cheques. Customer can make payment in LIC through: o Agents o Loans o Web sites o Standing instruction to banks: In this the account holder will give standing instruction to his bank to pay the amount of premium every month without his consent on the given date directly to LIC. Billing: The billing should be done in such a way that there are no mistakes and if there are any they must be immediately rectified. The billing should provide break-ups of premium charged, service charges, etc. Product Mix The Width of a product mix: It refers to how many different product lines are available. In case of insurance sector, there are generally three different product lines i.e. Life Insurance, Marine Insurance and Fire Insurance. The length of a product mix: It refers to the total number of items in the mix. In case of insurance sector, the following is the length of product mix: Service Sector Management: BBA-III. - 55 - The depth of a product mix: The various products and various types of the products with distinct features. In the insurance sector, one policy can be made available in different variations. Some of the examples are as follows: Life Insurance: These product mix dimensions permit the company to expand its business. E.g.: It can add new product lines thus widening its product mix. General Insurance: Service Sector Management: BBA-III. - 56 - Product levels: In this figure there is a nucleus or core in the center, which is supported by series of tangible and intangible features and benefits and these form a cluster around the core product. Level 1 2 3 4 Type of Contents service Core service Basic service product Expected service Augmented service Basic product and minimum purchase conditions that must be met. Something different, which enables one product to be differentiated from other Potential service Features that attract the customers and are useful to them. Insurance sector Life Non-life insurance policy After sales service Low claim settling period. Technology Online premium payment Payment through credit cards Standing instruction to bank Maturity claims settled on or before the maturity date. Loans Price Mix In the insurance business, the pricing decisions are concerned with the premium charged against the policies, interest charged for defaulting the payment of premiums & credit facilities, commission charged for underwriting & consultancy services Premium: Premiums are the periodic payments usually monthly or quarterly that the policy holder pays to the insurance company to purchase and keep a policy in force. For example in case of life insurance according to the policy it may be the amount payable during the endowment term of the policy or until the death of the life assured whichever is earlier. The basis on which the insurance company decides the amount of premium to be paid by each person is determined mainly by 3 factors: Mortality Tables: All insurance companies refer to different mortality tables. These tables differ from country to country. The mortality table indicates the probability of a person dying in a particular age group. For e.g. in an age group of 25-30 years, the probability might be just two, but this probability would increase for a higher age group of 45-50 years. Life Insurance Company (LIC) with its long-standing presence has a mortality table, which is grossly outdated. Some other insurance companies have got their own tables but they are more or less in line with that of LIC. Expected Surplus: The premiums collected by the insurer are invested in capital markets. There is a fixed investment pattern for the insurer. Out of the surplus earned on the premiums invested, 95% is distributed to the policyholders and the insurance company retains the balance 5%. Expenses: An insurance company has to incur expenses in the form of commission to agents, office expense, advertising expense, salaries to employees. These expenses are to be managed by the company in the 5% surplus earning which they earn as mentioned above. Now the criteria’s on which the premium amounts are fixed are different from different types of Insurance’s. Service Sector Management: BBA-III. - 57 - Life Insurance Pricing: The pricing in case of life insurance is done on the basis of: Life Expectancy: In case of life insurance, the premium amount tends to be different for different customers. This differentiation is on the basis of age, medical history of a person. Age E.g.: Low premium is charged for children and youngsters as it is assumed that they are at a lesser risk of death as compared to the aged people. Medical History The medical history should be revealed to the insurance company by the customer in Utmost Good Faith i.e. the insured must provide to the insurer complete, correct and clear information of the subject matter of insurance. Motor Vehicle Insurance: Car insurance companies take many factors into account when determining what premiums the insured will pay. Everybody does not pay the same premium. You pay a premium based on what the company assesses as the possible risk you pose. The major factor is the age and condition of the car. The other factors are as follows: Multiple cars or policies: When you have more than one car on an insurance policy, most companies will give you what is known as a multiple line discount. Because you use the company for all of your auto insurance needs, they reward you. Distance and amount of driving you do: Most car insurance companies ask prospective clients how far, and to where, they do most of their driving in a day. The thinking is that further you have to drive, and the more often you do it, the more likely you are to have an accident. The person who commutes 45 minutes to work every day is going to pay more than the person who drives 10 minutes to work. Likewise, a college student who walks to class, and drives home three or four times a year will cost less than the college student who spends 30 minutes commuting to and from campus each day. Location of your car: Car insurance companies rate areas according to the number of accidents or thefts that occur in a specified amount of time in that area. Sometimes, the company can even pinpoint a neighbourhood. If you live in a large city, your rates will be higher than if you live in a town. Fire and Marine Insurance Pricing: The principle of utmost good faith is applicable even for fire and marine insurance. E.g.: If a trader while taking a fire insurance policy does not disclose the previous occurrence of fire in the factory, and subsequently after taking policy, there is another fire, the insurance company may refuse to pay the compensation if it learns about the previous occurrence of fire which was not disclosed at the time of taking the policy. The pricing in case of fire and marine insurance is done on the basis of: Type of Building: In case of a building the rate of premium also depends on the type of construction. If it is wood construction the insurance premium is low as the cost in constructing a wood building is low in comparison to a concrete building that has higher premium amount Past Experience: If a fire or marine insurance company has a past experience of settling a claim successfully then, the credibility of the company increases and it charges higher premium for similar policies. The customers are assured that the company will be able to handle the claim well as it was done in past and hence they are ready to pay higher premium. Discount Pricing: In insurance sector, discount is offered if group insurance is opted for. Group Insurance Scheme is meant to provide life insurance protection to groups of people. Administration of the scheme is on group basis and cost is very low. Discount is given on group insurance scheme because the insurance company gets a large number of customers at a time and hence it saves expenses on promotion and advertisement, which are to be incurred to attract new customers. Service Sector Management: BBA-III. - 58 - Thus, discount is given in order to attract more customers at a time by this group insurance scheme. The cost incurred on giving discount is much less as compared to the cost spend and advertising and promotion. Hence discounting is much more profitable for the company. However, 65 per cent of the pricing is still determined by the government that is the Tariff Advisory Committee. So the rates of premium are more or less the same. It is going to change over the next few years. In non-tariff products like personal accident etc there is a lot of pressure on pricing. Companies will have to be reasonable while determining a pricing structure because, across the globe, there are instances of companies going bust while playing the game of undercutting state-run companies. Place Mix Channels: In case of insurance sector, the following channel of distribution is followed according to the target market: CHANNELS Direct Selling Partner Selling Agents Financial Advisors Call Centers Bancassurance Postal Department Selling through Corporates Direct Selling: Agents: The agents are selected and recruited by the development officer of the insurance company. These agents inform the customers about the various insurance policies offered by the company and convince them to buy these policies. Financial Advisors: The financial advisors are also consulted by the customers regarding their financial matters. These advisors suggest their clients to get their goods insured against any calamity or risk. Call centers: The people who require insurance call up the call centers. These call centers send their direct marketing agents who go to the customer’s place and sell the insurance policy. Partner Selling: Bancassurance: In bancassurance, the insurance products are sold through the banks network of branches. Om Kotak Mahindra has tie-up with Dena bank, by which former doesn't entertain bancassurance with any other bank and the latter also doesn't distribute policies of any other insurance company Postal Department: . Insurance companies can tie up with the postal department to sell and distribute various insurance covers. This would certainly require upfront training costs, as the postal employees in turn need to educate and sell the concept and benefits of insurance to the people in rural areas. Selling Through Corporates: Insurance can be sold through corporates too. E.g.: When a customer purchases a Maruti car, he gets the insurance of the car free from the Maruti Company itself. Thus this is termed as selling insurance through corporates. Electronic Channels: In the last decade, numbers of technological advances have taken place due to immense use of EDI (Electronic Data Interchange) CHANNEL Electronic channels LIC on internet Information Kiosks SMS Information kiosks: Service Sector Management: BBA-III. - 59 - LIC have set up 150 interactive Touch screen multimedia KIOSKS in prime locations in metros and some major cities for dissemination information to general public on our products and services. SMS: SMS through mobile phone is recently new technology introduced by the LIC to promote their product. Place In insurance, location, the place where office situated is not as important as mostly the agents of the insurance company goes to the place of the customers for doing most of that customers work. Physical Evidence Physical evidence is the environment in which the service is delivered and where the company and the customers interact and any tangible goods that facilitate the performance and communication of the service. Services are intangible and heterogeneous. Intangibility means that services cannot be displayed, physically demonstrated or illustrated; heterogeneity means that consumers cannot be certain about performance on any given day. It plays a major role in enhancing customers’ perception of the service quality. However, in case of insurance sector, the customer rarely visits the insurance company. The customer comes mostly only in contact with the service provider. Insurance Service Tangibles as Physical Evidences 1 Policy Documents 2 Brochures 3 Periodic Statements 4 Renewal Notices 5 Business Cards 6 Stationary 7 Calendar, Diaries 8 Letters/Cards 9 Website People Mix. Employees: Employees are very crucial because: They are the service They are the brand They are the marketers They are the organization in the eyes of the customers. The various employees involved in providing service to the customer in insurance sector are: Customer service representatives: They, process insurance policy applications, changes, and cancellations. They review applications for completeness, compile data on policy changes, and verify the accuracy of insurance company records. They may also process claims and sell new policies to existing clients. Service Sector Management: BBA-III. - 60 - Marketing and sales managers: These constitute the majority of managers in carriers’ local sales offices and in the insurance sales agents segment. These employees sell insurance products, work with clients, and supervise staff. Claims adjusters, appraisers, examiners, and investigators: These decide whether claims are covered by the customer’s policy, confirm payment, and, when necessary, investigate the circumstances surrounding a claim. Claims adjusters work for property and liability insurance carriers or for independent adjusting firms. They inspect property damage, estimate how much it will cost to repair, and determine the extent of the insurance company’s liability; in some cases, they may help the claimant receive assistance quickly in order to prevent further damage and begin repairs. Underwriters: Underwriting is another important management and business and financial occupation in insurance. Underwriters evaluate insurance applications to determine the risk involved in issuing a policy. They decide whether to accept or reject an application, and they determine the appropriate premium for each policy. Insurance sales agents: About 15 percent of wage and salary employees in the industry are sales workers, selling policies to individuals and businesses. Insurance sales agents, also referred to as producers, may work as exclusive agents, or captive agents, selling for one company, or as independent agents selling for several companies. Through regular contact with clients, agents are able to update coverage, assist with claims, ensure customer satisfaction, and obtain referrals. Lawyers: The insurance industry employs relatively few people in professional or related occupations, but those who are so employed are essential to company operations. For example, insurance companies’ lawyers defend clients who are sued, especially when large claims may be involved. These lawyers also review regulations and policy contracts. Nurses and other medical professionals advise clients on wellness issues and on medical procedures covered by the company’s managed-care plan. Computer systems analysts, computer programmers, and computer support specialists: These are needed to analyse, design, develop, and program the systems that support the day-today operations of the insurance company. Actuaries: These represent a relatively small proportion of employment in the insurance industry, but they are vital to the industry’s profitability. Actuaries study the probability of an insured loss and determine premium rates. Customers: People mix not only includes employees but also customers. The customers are to be treated with respect and courtesy. Process Mix In case of insurance sector, the process mix includes the various interactions that take place between the insurance agent and the customer in the process of selling the policy to the customer till the settlement of claims. The following process mix is followed by insurance companies in case of life insurance: 1. The insurance agent calls up the customer and informs him about the different policies offered by the company and the price mix of all the policies. If, the customer seems interested in taking the policy then, he fixes an appointment with the customer. 2. The insurance agent meets the customer and gives him some information about the insurance company and also about the benefits of the policy. 3. The customer is then asked to fill a financial review form (FRF) and the agent is asked to find out the standard of living of the customer so that the insurance company gets a clear picture about the financial condition of the customer and what kind of policy he can afford. Service Sector Management: BBA-III. - 61 - 4. The insurance company offers various policies but they might not be suitable for the customer hence, on the basis of his requirements and financial status, the insurance agent suggests two or three policies to the customer, which will be suitable for him. 5. The insurance agent explains the different policy plans in detail to the customer i.e. the amount of premium to be paid, the time interval at which the premium is to be paid, the benefits of each of the policy etc. A brochure is also provided to the customer wherein the entire description of all the policies is given. 6. Then, the insurance agent provides a feedback form to the customer and asks him to give his feedback regarding the policies that he has been informed about. This feedback is taken in order to find out whether the customer is satisfied with the plans of the policy or whether the company needs to make the policy plans more attractive so that it may appeal to its future customers. 7. Then, the next appointment is fixed by the insurance agent with the customer and in this meeting; the customer selects the policy plan, which appeals to him. The customer is then asked to fill up the proposal form which contains various details of the payment and he is asked to make the first premium payment. 8. Then, the insurance agent submits the duly filled and signed form in the insurance office along with the other necessary documents. E.g.: Medical Reports in case of Life Insurance. Submission of Age Proof is essential as the rate of premium payable on a life insurance policy generally varies with age, and therefore age is one of the most important factors in determining the rate of premium payable in an individual case. The following is accepted as age proof: o Certified extract from municipal or local body’s records made at the time of birth. o Certificate of Baptism if it contains date of birth o Passport issued by passport authorities in India. o Certified Extract from school or college records, if date of birth is mentioned. The customer must get himself examined from the approved doctor of LIC. The medical examination is necessary to determine the physical fitness of the customer. If the medical report is favourable, then only LIC will issue the policy. 9. An average twelve days time is taken by the company to verify the submitted documents. After the twelve days period, the insurance agent meets the customer to provide him a policy document, which consists of the terms and conditions of the policy. This is because terms and conditions of the policy differ for different customers due to differences in medical conditions of customers in case of life insurance and due to differences in nature of goods and mode of transportation in case of marine and fire insurance. 10. Then, a reconfirmation is taken by the agent from the customer that he agrees with the terms and conditions of the policy. 11. The insurance agent then regularly collects the premium from the customer whenever the premium becomes due. Promotion Mix Advertising: It is a paid form of non-personal communication. It is used to create awareness and transmit information in order to gain a response from the target market. Forms of advertising are as follows: o News Papers and Magazines: LIC give ads in the newspapers and magazines round the year to continue its brand image and also when new products are introduced. Normally its ads are published in Times of India. o Electronic media: Insurance companies also advertise its services in the Electronic media like: Internet (Websites): Service Sector Management: BBA-III. - 62 - Companies like LIC, ICICI Prudential all have websites from which people can get the information about their products, prices, various schemes, and lots of other information. People can also purchase the product through this website. Television: Companies like LIC, Met Life India, advertise on television to make people aware of their products and services. Radio: ICICI Prudential advertises on 92.5 red Fm. o Hoardings: LIC put its hoardings where there is a mass flow of people, especially outside the railway station or at the backside of the bus. When Met Life was introduced it has put his hoardings on the side of the train, to target huge number of people. o Brochures: Companies provide brochures to the customers so that they can have a look on various schemes and their prices. Public relations: Public relations are helpful for the companies to build their brand image, to maintain good relationship with customers, to make the people aware of its recent happenings, etc. Mediums of Public relations are: o Press releases: This helps the company to convey its message to its customers and other people. o Seminars: These are held to provide information about the new product launched, position of the company in the market, etc. Sales Promotion: Gifts: LIC provides diaries, pens, booklets, etc to its customers. o Sponsoring Events: Eg: Max New York Life Insurance Company has sponsored the recent India-Zimbabwe-New Zealand tri series. Personal selling: o Agents: It is the most widely used method of promotion by all insurance companies. They recruit, train and motivate the insurance agents to convince the customers to buy insurance policies of that particular company. The agent also collects the monthly premium and settles the claims of the customers. Word of Mouth: Word of Mouth promotion plays the role of hidden sales force. The word of mouth promotion is normally carried out by customers, agents and employees. It can be positive or negative depending upon the service or experience they receive. o Customers: It is important for the organization to provide customers with quality service so that he is satisfied and spread the good word of mouth. On the contrary if the customer is not satisfied with the service or experience he spreads bad word of mouth. The Insurance Regulatory and Development Authority (IRDA) Reforms in the Insurance sector were initiated with the passage of the IRDA Bill in Parliament in December 1999. The IRDA since its incorporation as a statutory body in April 2000 has fastidiously stuck to its schedule of framing regulations and registering the private sector insurance companies. The other decisions taken simultaneously to provide the supporting systems to the insurance sector and in particular the life insurance companies was the launch of the IRDA’s online service for issue and renewal of licenses to agents. Service Sector Management: BBA-III. - 63 - The approval of institutions for imparting training to agents has also ensured that the insurance companies would have a trained workforce of insurance agents in place to sell their products, which are expected to be introduced by early next year. Since being set up as an independent statutory body the IRDA has put in a framework of globally compatible regulations. In the private sector 12 life insurance and 6 general insurance companies have been registered. The Government of India liberalised the insurance sector in March 2000 with the passage of the Insurance Regulatory and Development Authority (IRDA) Bill, lifting all entry restrictions for private players and allowing foreign players to enter the market with some limits on direct foreign ownership. Under the current guidelines, there is a 26 percent equity cap for foreign partners in an insurance company. There is a proposal to increase this limit to 49 percent. Premium rates of most general insurance policies come under the purview of the government appointed Tariff Advisory Commitee. The opening up of the sector is likely to lead to greater spread and deepening of insurance in India and this may also include restructuring and revitalizing of the public sector companies. A host of private Insurance companies operating in both life and non-life segments have started selling their insurance policies since 2001. Career as an Insurance agent An insurance agent is a person who takes up agency from the insurance company to sell their policy on a commission basis. He acts as an intermediary between the insurance company and the policy holder. But before doing so, he has to undergo training and get a certificate of proficiency from the insurance company. Mostly insurance policies are bought through agents. Agents help individuals and companies in selecting the right policy for their needs. They plan for the financial security of individuals, families and businesses and advise them about insurance protection. They also help the policy holders at the time of settlement of the claim. The job of agents is quite challenging as selling a product like insurance policy is not easy. For being successful, agents should be outgoing and social. They should have a knack of convincing people. Agents are not on the payrolls of the insurance company. The insurance agents get a fixed commission on each policy they (insurance-agent) manage to sell Eligibility and Process - People who wish to become insurance agents are required to undergo 100 hours of training by the respective insurance company. Once the training is complete, the candidate is eligible to appear for an online examination conducted by the Insurance Regulatory Development Authority (IRDA) with at least 50 per cent marks set for qualifying. Composite Agent - is the one who sells both life and general insurance policies. One has to put in 100 hours promoting life insurance products assuming that you are a general insurance agent. A life insurance agent, before appearing for another exam, has to dedicate 50 hours towards promoting general insurance products. A composite agent has to appear for another test also (conducted by the IRDA.)The agent is supposed to renew his license after three years, by putting in another 25 hours (and 50 hours for composite insurance agent) of training. An agent can register under a development officer in any insurance company. The training institutes are accredited by the IRDA. and the insurance Company merely sponsors its agent(s). An agent works with the Development Officer in the insurance Company and the credit for the policy of the insurance agents goes to the Development Officers within the organization. Nevertheless, this job is as good as freelancing. Secondly, the insurance companies also provide incentive schemes for the insurance agents from time to time. Service Sector Management: BBA-III. - 64 - MUTUAL FUND MARKETING A mutual fund is simply a financial intermediary that allows a group of investors to pool their money together with a predetermined investment objective. The mutual fund will have a fund manager who is responsible for investing the pooled money into specific securities (usually stocks or bonds). When you invest in a mutual fund, you are buying shares (or portions) of the mutual fund and become a shareholder of the fund. Mutual funds are one of the best investments ever created because they are very cost efficient and very easy to invest in (you don't have to figure out which stocks or bonds to buy). By pooling money together in a mutual fund, investors can purchase stocks or bonds with much lower trading costs than if they tried to do it on their own. But the biggest advantage to mutual funds is diversification. A Mutual Fund is a trust that pools the savings of a number of investors who share a common financial goal. The money thus collected is then invested in capital market instruments such as shares, debentures and other securities. The income earned through these investments and the capital appreciation realized are shared by its unit holders in proportion to the number of units owned by them. Thus a Mutual Fund is the most suitable investment for the common man as it offers an opportunity to invest in a diversified, professionally managed basket of securities at a relatively low cost. The flow chart below describes broadly the working of a mutual fund: Mutual Fund Operation Flow Chart Mutual fund advantage Mutual Fund Investing vs. Stock Investing It seems strange to compare mutual funds to stocks since mutual funds are primarily composed of stocks, but it is important to distinguish the two because there are some notable advantages to using mutual funds. Get Focused Investing in individual stocks can be fun because each company has a unique story. However, it is important for people to focus on making money. Investing isn't a game. Your financial future depends on where you put you hard earned dollars and it shouldn't be taken lightly. Diversification There is no greater advantage to using mutual funds than diversification. Do you honestly believe wealthy investors purchase just a couple of stocks? Of course not! If they are not using mutual funds (many do), than they are purchasing a large number of stocks. Smart investors diversify because it greatly reduces risk without sacrificing returns. Professional Management By purchasing mutual funds, you are essentially hiring a professional manager at an especially inexpensive price. It would be a bit cocky to think that you know more than mutual fund manager. These managers have been around the industry for a long time and have the academic credentials to back it up. Saying you could outperform a mutual fund manager is similar to a football fan sitting on their couch saying "I could have made that catch" -possible, but not likely. Service Sector Management: BBA-III. - 65 - Even if some of us are better at picking stocks than a professional and their support staff, most of us would not want to spend the amount of time it takes to watch, research and trade the market on a daily basis. Efficiency By pooling investors' monies together, mutual fund companies can take advantage of economies of scale. With large sums of money to invest, they often trade commission-free and have personal contacts at the brokerage firms. Ease of Use Can you imagine keeping track of a portfolio consisting of hundreds of stocks? The bookkeeping duties involved with stocks are much more complicated than owning a mutual fund. If you are doing your own taxes, or are short on time, this can be a big deal. Liquidity If you find yourself in need of money in a short amount of time, mutual funds are highly liquid. Simply put in your order during the day and when the market closes a check will be sent to you or you can have it wired to a bank account. Stocks can be much more difficult depending on what kinds of stocks you are invested in. CD's offer no liquidity (not without a hefty fee) and bonds can be difficult, too. Some mutual funds also carry check writing privileges, which means you can actually write checks from the account, similar to your checking account at the bank. Cost Mutual funds are excellent for the new investors because you can invest small amounts of money and you can invest at regular intervals with no trading costs. Stock investing, however, carries high transaction fees making it difficult for the small investor to make money. If an investor wanted to put in $100 a month into stocks and the broker charged $15 per transaction, their investment is automatically down 15 percent every time they invest. That is not a good way to start off! Wealthy stock investors get special treatment from brokers and wealthy bank account holders get special treatment from the banks, but mutual funds are non-discriminatory. It doesn't matter whether you have $50 or $500,000, you are getting the exact same manager, the same account access and the same investment. Risk In general, mutual funds carry much lower risk than stocks. This is primarily due to diversification (as mentioned above). Certain mutual funds can be riskier than individual stocks, but you have to go out of your way to find them. With stocks, one worry is that the company you are investing in goes bankrupt. With mutual funds, that chance is next to nil. Since mutual funds typically hold anywhere from 25-5000 companies, all of the companies that it holds would have to go bankrupt. I won't argue that you shouldn't ever invest in individual stocks, but I do hope you see the advantages of using mutual funds and make the right choice for the money that you really care about. Mutual Funds Industry in India The origin of mutual fund industry in India is with the introduction of the concept of mutual fund by UTI in the year 1963. Though the growth was slow, but it accelerated from the year 1987 when non-UTI players entered the industry. In the past decade, Indian mutual fund industry had seen dramatic improvements, both quality wise as well as quantity wise. Before, the monopoly of the market had seen an ending phase; the Assets Under Management (AUM) was Rs. 67bn. The private sector entry to the fund familym rose the AUM to Rs. 470 bn in March 1993 and till April 2004, it reached the height of 1,540 bn. Putting the AUM of the Indian Mutual Funds Industry into comparison, the total of it is less than the deposits of SBI alone, constitute less than 11% of the total deposits held by the Indian banking industry. Service Sector Management: BBA-III. - 66 - The main reason of its poor growth is that the mutual fund industry in India is new in the country. Large sections of Indian investors are yet to be intellectuated with the concept. Hence, it is the prime responsibility of all mutual fund companies, to market the product correctly abreast of selling. The mutual fund industry can be broadly put into four phases according to the development of the sector. Each phase is briefly described as under. First Phase - 1964-87: Unit Trust of India (UTI) was established on 1963 by an Act of Parliament. It was set up by the Reserve Bank of India and functioned under the Regulatory and administrative control of the Reserve Bank of India. In 1978 UTI was de-linked from the RBI and the Industrial Development Bank of India (IDBI) took over the regulatory and administrative control in place of RBI. The first scheme launched by UTI was Unit Scheme 1964. At the end of 1988 UTI had Rs.6, 700 crores of assets under management. Second Phase - 1987-1993 (Entry of Public Sector Funds): Entry of non-UTI mutual funds. SBI Mutual Fund was the first followed by Can bank Mutual Fund (Dec 87), Punjab National Bank Mutual Fund (Aug 89), Indian Bank Mutual Fund (Nov 89), Bank of India (Jun 90), Bank of Baroda Mutual Fund (Oct 92). LIC in 1989 and GIC in 1990. The end of 1993 marked Rs.47, 004 as assets under management. Third Phase - 1993-2003 (Entry of Private Sector Funds): With the entry of private sector funds in 1993, a new era started in the Indian mutual fund industry, giving the Indian investors a wider choice of fund families. Also, 1993 was the year in which the first Mutual Fund Regulations came into being, under which all mutual funds, except UTI were to be registered and governed. The erstwhile Kothari Pioneer (now merged with Franklin Templeton) was the first private sector mutual fund registered in July 1993. The 1993 SEBI (Mutual Fund) Regulations were substituted by a more comprehensive and revised Mutual Fund Regulations in 1996. The industry now functions under the SEBI (Mutual Fund) Regulations 1996.The number of mutual fund houses went on increasing, with many foreign mutual funds setting up funds in India and also the industry has witnessed several mergers and acquisitions. As at the end of January 2003, there were 33 mutual funds with total assets of Rs. 1,21,805 crores. The Unit Trust of India with Rs.44, 541 crores of assets under management was way ahead of other mutual funds. Fourth Phase - since February 2003: This phase had bitter experience for UTI. It was bifurcated into two separate entities. One is the Specified Undertaking of the Unit Trust of India with AUM of Rs.29, 835 crores (as on January 2003). The Specified Undertaking of Unit Trust of India, functioning under an administrator and under the rules framed by Government of India and does not come under the purview of the Mutual Fund Regulations. The second is the UTI Mutual Fund Ltd, sponsored by SBI, PNB, BOB and LIC. It is registered with SEBI and functions under the Mutual Fund Regulations. With the bifurcation of the erstwhile UTI which had in March 2000 more than Rs.76, 000 crores of AUM and with the setting up of a UTI Mutual Fund, conforming to the SEBI Mutual Fund Regulations, and with recent mergers taking place among different private sector funds, the mutual fund industry has entered its current phase of consolidation and growth. As at the end of March 2006, there were 29 funds. Types of Mutual Funds Schemes in India Wide variety of Mutual Fund Schemes exists to cater to the needs such as financial position, risk tolerance and return expectations etc. The table below gives an overview into the existing types of schemes in the Industry. TYPES OF MUTUAL FUND SCHEMES By Structure o Open - Ended Schemes o Close - Ended Schemes o Interval Schemes Service Sector Management: BBA-III. - 67 - By Investment Objective o Growth Schemes o Income Schemes o Balanced Schemes o Money Market Schemes Other Schemes o Tax Saving Schemes o Special Schemes Index Schemes Marketing Mix for Mutual Fund 1. Product Design and Range Mutual fund products (schemes) are basically investments-oriented and the savings mobilized by them are invariably invested in the instruments (shares, debentures) projected in the schemes. There is little scope for flexibility. Therefore, due care needs to be taken while designing particular products taking into account expected changes in capital/ stock market in view of future investments return. The changing profile of customers (investors) must be taken into account in identifying the savings market. Different segments of the potential savings market have different expectations—longterm growth, regular income tax benefits, and so on. New products must be aimed at satisfying one or more objectives. Tax laws and other related regulations also play an important role in designing new products because benefits can be offered to investors within the existing framework of tax regulations. India lags behind countries like the USA, the UK and Japan in terms of innovative products. Most of the products launched in India are either income or income-cum-growth schemes; few are pure growth schemes. Investor options have been restricted due to limited product range. Like product planning, product launching is a crucial element in marketing. Many Indian mutual funds have performed poorly due to wrong timing of launch. Market research can help to assess the needs of potential customers, availability of existing products and future growth in demand. Kinds of Mutual Funds Mutual Funds have specific investment objectives such as growth of capital, safety of principal current income or tax exempt income, one can select one fund or any number of different funds to help one meets ones specific goals. In general mutual fund fall under 3 general categories: Equity fund invest in shares of common stocks. Fixed income funds invest in government or corporate securities, which offer fixed rate of returns. Balanced fund invest in a combination of both stocks and bonds OPEN ENDED SCHEMES: - Open-ended schemes do not have a fixed maturity period. Investors can buy or sell units at NAV- related prices from and to the mutual fund on any business day. These schemes have unlimited capitalization, open-ended schemes do not have a fixed maturity, there is no cap on the amount you can buy from the fund and the unit capital keep growing. These funds are not generally listed on any exchange. Open-ended schemes are preferred for their liquidity. Such funds can issue and redeem units any time during the life of schemes. Hence unit capital of open-ended funds can fluctuate on a daily basis. The advantages of open-ended schemes are: 1. 2. Any time exit option Any time enter option. CLOSED ENDED SCHEMES: Close-ended schemes have fixed maturity periods. Investors can buy into these funds during the period when these funds are open in the initial issue. After that Service Sector Management: BBA-III. - 68 - such scheme cannot issue new units except in case of bonus or right issue. However after the initial issue you can buy or sell units of the schemes on the stock exchange where they are listed. The market price of the unit could vary from the NAV of the schemes due to demand and supply factor AGGRESSIVE GROWTH FUNDS: - These funds seek to provide maximum growth of capital with secondary emphasis on dividend or interest income. They invest in common stocks with a high potential for rapid growth and capital appreciation. Aggressive growth funds are suitable for those investors who can afford to assume the risk of potential loss in value of their investment in the hope of achieving substantial and rapid gains. They are not suitable for investors who must conserve their principal or who must maximize their current income. GROWTH FUNDS:- Like aggressive growth funds, growth fund generally invests in stocks for growth rather than income. They are considered more conservative in their approach because they usually invest in established companies to achieve long-term growth. Growth fund provides low current income but the investor principal is more stable then it would be in an aggressive growth fund. While the growth potential may be less over the short term, many growth funds have superior long-term performance records. These funds are suitable for growth oriented investors but not investors who are unable to assume risk or who are dependent on maximizing current income from there investments. GROWTH AND INCOME FUNDS:- Growth and income funds seek long-term growth of capital as well as current income. The investments strategies use to reach these goals vary among funds. Growth and income funds have low to moderate stability of principal and moderate potential for current income and growth. They are suitable for investors who can assume some risk to achieve growth of capital but want to maintain a moderate level of current income. FIXED INCOME FUNDS:- The goal of fixed income fund is to provide high current income consistent with the level of capital. Growth of capital is of secondary importance. Fixed income funds offer a higher level of current income than money market funds, but a lower stability of principal. Fixed income funds are suitable for investors who want to maximize current income and who can assume a degree of capital risk in order to do so. EQUITY FUNDS:- Funds that invest in stocks represent the largest category of mutual fund. Generally the investment objective of this class of fund is long-term capital growth with some income. There are however many type of equity funds. BALANCED FUNDS:- The Balanced funds aims to provide both growth and income. These funds invest in both shares and fixed income securities in the proportion indicated in their offer documents. It is an idea for investors who are looking for the combinations of income and moderate growth. MONEY MARKET FUNDS/ LIQUID FUNDS: - For the cautious investors these funds provide a very high stability of principal while seeking a moderate to high current income. They invest in highly liquid; virtually risk free, short-term debt securities of agencies of the Indian government, banks and corporation and treasury bills. Because of their short-term investments, money market mutual funds are able to keep a virtually constant unit price; only the yield fluctuates. Money market funds are suitable for those investors who want high stability of principal and current income with immediate liquidity. SPECIALITY / SECTOR FUNDS: - These funds invest in securities of a specific industry or sector of the economy such as health care, technology, leisure, utilities or precious metals. The funds enable investor to diversify holding among many companies within an industry, a more conservative approach than investing directly in one particular company. Sector funds offer a opportunity for sharp capital gains in cases where the fund’s industry is “in favor” but also entail the risk of capital losses when the industry is out of favor. While sectors funds restrict holdings to a particular industry, other specialty funds such as index funds gives investors a broadly diversified portfolio and attempt to mirror the performance of various market averages. Service Sector Management: BBA-III. - 69 - 2. Pricing Policy The price of mutual fund products is inextricably linked with returns. Indian mutual funds follow the historic pricing structure. SEBI (Mutual Funds) Regulations, 1996, contain guidelines about the pricing of units. As per these guidelines, the schemes may also provide for the price at which the units may be subscribed or sold to the independent participants in the scheme and the price at which such units may at any time be repurchased by the mutual funds. Mutual funds are also to publish the sale and repurchase prices at least once in a week. Mutual funds are also to ensure that the difference between the sale and repurchase prices does not exceed 7 per cent of the sale price. In India the face value of the units of most of the mutual funds is Rs 10. However, while deciding on the price, incentives, brokerage charges and commissions are also to be decided in advance because the expenses towards these items will effect the ultimate returns to investors. 3. Distribution and Promotion of Product A new mutual fund product may have all the desired qualities but that does not ensure its spontaneous acceptance by customers. Success would greatly depend on appropriate distribution and promotion. The identification of appropriate market segments for the product, selection of appropriate distribution channels and promotional aids are essential. Till the advent of public sector mutual funds in 1987 and private sector mutual funds in 1993, the marketing strategy followed by UTI was largely passive. UTI units have been mainly sold through LIC agents whose job is really marketing insurance. Marketing intermediaries like agents/brokers in India, moreover, are under no obligation to follow any norms unlike the USA, UK and Japan. While Indian mutual funds still depends mostly on retailing, a distinct change has been noted in marketing strategy after 1993. The major market intermediaries are: agents appointed by respective mutual funds, stockbrokers who are members of stock exchange and are registered with the mutual fund, institutional and corporate agents. Public sector mutual funds like LIC MF and UTI have an edge over others due to their well-established agency network. Though the corporate offices formulate the overall marketing strategy and co-ordinate the activities relating to publicity and product distribution, local level activities are supervised and coordinated by the zonal and branch offices. For example, UTI has four zonal offices and 44 branches; LIC MF has seven area offices. Other mutual funds also have regional offices, which promote sales at the local level. Recent innovations in marketing aim to reach particular target groups. For example: To market its income-cum-growth scheme in 1993 a bank-sponsored public sector mutual fund sent application forms to all the credit cardholders of the sponsoring bank. It is reported that about 10 per cent of the total collections came from the cardholders. A public sector mutual fund, which launched a growth scheme in 1994 tied up with a foreign bank and the holders of credit cards of this bank, could pay for the initial subscription through credit cards. Many mutual funds offer incentives for early subscriptions; some mutual funds also offer insurance benefits to attract investors. An emerging trend is the distribution of schemes through merchant bankers. A number of funds have appointed lead managers to their schemes. The merchant bankers distribute the scheme through their booking wings that usually have wide network of sub-brokers. Distribution of application forms through a tie-up with newspapers is also now a common practice. Product promotion in India has taken the usual routes of advertisement and publicity. Mutual funds advertisements are regulated by SEBI, which prohibits materials and contents of publicity that may mislead the investing public. Communication is important for effective marketing and communication through advertisement is the most important promotional aid for a mutual fund. Once the target group and its requirements are identified, an appropriate advertisement strategy is devised in order to reach the maximum number of potential customers. Advertising campaigns must aim at creating awareness of the product, its comparative advantages and future potential, past performance of Service Sector Management: BBA-III. - 70 - similar products and superiority of the fund in relation to others in terms of assets, management and performance. 4. Customer Service The marketing of service is significantly influenced by the quality of service and the interpersonal relationship between customers and the service organization. Servicing has great significance in mutual funds, as in any other financial service industry. Prompt and timely service as in issuing certificates/cheques and in attending to any customer problem would make a distinct difference. Expected rates of return being more or less same for all schemes, it is the quality of service that becomes the deciding factor. Services can be provided through external agencies, or internally through the service department. In India most mutual funds provide aftersales service through both external agencies and internal service department, although they largely rely on external agencies like registrars and transfer agents who are specialized in the job. Sometimes there are complaints that after-sales servicing are not up to the expectation level. This is probably due to absence of sufficient staff. However, mutual funds do need to develop inhouse expertise to render after-sales services more promptly and cost effectively. In order to ensure quality service to customers, service audit would be great help to monitor the range of services usually rendered by mutual funds. These are sales-related, complaint-related and suggestions-related services. Service standards can be fixed on the basis of expectations levels of customers, which can be found through market surveys. Association of Mutual Funds in India (AMFI) With the increase in mutual fund players in India, a need for mutual fund association in India was generated to function as a non-profit organisation. Association of Mutual Funds in India (AMFI) was incorporated on 22nd August, 1995. AMFI is an apex body of all Asset Management Companies (AMC) that has been registered with SEBI. Till date all the AMCs are that have launched mutual fund schemes are its members. It functions under the supervision and guidelines of its Board of Directors. Association of Mutual Funds India has brought down the Indian Mutual Fund Industry to a professional and healthy market with ethical lines enhancing and maintaining standards. It follows the principle of both protecting and promoting the interests of mutual funds as well as their unit holders. The objectives of Association of Mutual Funds in India The Association of Mutual Funds of India has certain defined objectives, which juxtaposes the guidelines of its Board of Directors. The objectives are as follows: This mutual fund association of India maintains high professional and ethical standards in all areas of operation of the industry. It also recommends and promotes the top class business practices and code of conduct which is followed by members and related people engaged in the activities of mutual fund and asset management. The agencies who are by any means connected or involved in the field of capital markets and financial services also involved in this code of conduct of the association. AMFI interacts with SEBI and works according to SEBIs guidelines in the mutual fund industry. Association of Mutual Fund of India do represent the Government of India, the Reserve Bank of India and other related bodies on matters relating to the Mutual Fund Industry. ·It develops a team of well-qualified and trained Agent distributors. It implements a programme of training and certification for all intermediaries and other engaged in the mutual fund industry. AMFI undertakes all India awareness programme for investors in order to promote proper understanding of the concept and working of mutual funds. Service Sector Management: BBA-III. - 71 - At last but not the least association of mutual fund of India also disseminate information’s on Mutual Fund Industry and undertakes studies and research either directly or in association with other bodies. Career as a Mutual Funds Advisor The Association of Mutual Funds in India (AMFI) is an apex body of all Asset Management Companies (AMC) that are registered with the SHBI. AMFI develops a team of well-qualified and trained Agent Distributors. It implements a program of training and certification for all intermediaries and others engaged in the mutual fund industry including employees of mutual funds. AMFI Mutual Fund Certification is based on a testing programme. There are two Modules of the test. The first is the AMFI Mutual Fund (Basic) Module. This is a general test covering the concept, structure and other essential general topics. This is meant for all employees of Mutual Funds (other than those who are engaged in selling and marketing activities), general public and for those who would like to have a basic knowledge of concept and working of Mutual Funds. Any one who desires to acquire knowledge of the functioning of the mutual fund without seeking to become a fund distributor can take part one test independently. A certificate will be issued separately for Basic Module test to the successful candidates. There is no validity period for the AMFI-Mutual Fund (Basic) Module certification. The second is the AMFI Mutual Fund (Advisors) Module and it covers subjects such as financial planning, risks in fund investing, model portfolio selection in addition to the subjects covered under the Basic Module and constitute a single certification programme which is designed for certification of fund distributors or intermediaries engaged in selling mutual fund schemes, employees of corporate intermediaries and employees of mutual funds who are engaged in selling and marketing activities. The validity period for the AMFI-Mutual Fund (Advisors) module certification is for five years. The Securities and Exchange Board of India (SEBI) has made mandatory for any entity / person engaged in marketing and selling of mutual fund products to pass AMFI certification test (Advisors Module) and obtain registration number from AMFI. Firms and corporates will have to obtain certification of registration from AMFI and all employees of corporate distributors engaged in selling and marketing of mutual fund products have to pass the AMFI certification test (Advisors Module) and obtain registration with AMFI before canvassing business of mutual funds. Service Sector Management: BBA-III. - 72 - TELECOMMUNICATIONS SERVICES Introduction Telecommunication is one of the prime support services needed for rapid growth and modernization of various sectors of the economy, the sector has grown rapidly in recent years, its growth needs to be accelerated further. It is also one of the fastest growing sectors in India and has immense potential for growth. The Telecommunication activity is commercial in nature and people are willing to pay for it. Of all infrastructure sectors, it is perhaps best suited for private sector participation which would help to create competitive environment and improve quality of services to consumers. Private investment is expected to play a major role supplementing the efforts of the public sector in expanding capacity and also providing competition with the system. In the area of value-added services, the private sector would continue to play a dominant role. The quantum of investment by the private operators would basically be determined by the rate of return on such investments – both basic as well as value-added services. The Telecom sector has witnessed some fundamental structural and institutional reforms in past decades. Telecom equipment manufacturing was completely deregulated in 1991. Value-added services (including cellular services) were thrown open to private sector participation in 1992. Basic Services were opened to private participation in 1994 by dividing country into 21 Telecom Circles and allowing one private operator per Circle to compete with DOT (DEPARTMENT OF TELECOMMUNICATION). An Independent Telecom Regulatory Authority of India was setup in 1997. A new policy for Internet Service Providers (ISPs) was announced in 1998 allowing independent services providers to enter the sector ending the earlier monopoly of VSNL. Characteristics of the Telecom Sector Supply Intense competition has resulted in prompt service to the subscribers. However, smaller towns and villages continue to have waiting periods on account of non-availability of adequate infrastructure. Demand Given the low penetration levels in the country and continuously falling tariffs, demand will continue to remain higher in the foreseeable future across all the segments. Entry and Exit Barriers Telecom industry is characterized by high entry and exit barriers. Service providers need to invest huge capital to build or hire the necessary infrastructure for providing services to customers. For e.g. Tata Teleservices in India invested an amount of Rs.7, 533 crores for setting up the required infrastructure. Because of the high cost of capital involved, in most countries, the government owned telecom service organization enjoys a monopoly. Thus, the telecom industry is heavily-regulated by the government. Even in an open industry where the private players are allowed to operate, if a player finds it difficult to compete and wants to quit the industry, finding a right buyer is a formidable task. The buyer should be willing to pay the huge amount, enter the market and face the challenges. Bargaining power of suppliers Improved competitive scenario and commoditization of telecom services has led to reduced bargaining power for services providers. Bargaining power of customers A wide variety of choices available to customers both in fixed as well as mobile telephony has resulted in increased bargaining power for the customers. Competition The entry of fourth cellular player and commencement of WLL services has resulted in intense competition in the bigger cities. Reducing tariffs will hurt the new entrants, as they will be unable to recover their high capital investments. Service Sector Management: BBA-III. - 73 - Market segmentation Market segmentation is the basic step for any service provider before deciding on the segment to be served and the marketing strategy required to serve it. The market for telecom industry can be divided into following segments based on the consumerIndividual The most important segment is that of individual customers or households. Because of the monopoly of government owned telecommunications sector in India people earlier paid very high prices. After the basic telephone services were opened for private players in 1994, many players entered the market and the prices came down owing to competition. The number of individual users for telephones increased significantly, as the reach improved and service efficiency increased. India however lags behind many other developing countries in telephone line density. Following table gives the brief idea of the teledensity in some developed or developing countries of the world:COUNTRY UK Australia USA Brazil China India Sri Lanka Indonesia Pakistan Nepal Bangladesh TELEDENSITY 143.13 126.18 116.43 42.38 42.32 10.38 9.57 9.17 4.42 1.70 1.56 Corporate Corporate communication includes the communication of information between two units in two different locations of a city, of a country or in two different. countries. Business communication can take any form, telephonic conversation letter, e-mail, and fax etc. It is important that the message be conveyed clear and fast, without any distortions for the business to function effectively and efficiently. Telecom industry' relics heavily on the corporate sector for it's business. The corporate sector contributes to the heavy traffic on telephone lines during the daytime. This has led the telecom companies to offer lower tariffs in the early mornings and late evenings to shift the demand when most businesses arc closed. Rural During the monopoly of the government owned service providers, the worst affected customer was the rural customer. The reach was bad and the quality of service provided was even worse. The telecom revolution of the late '80s and early '90s saw a change in the rural telecom scene. Because of the government's initiative to lay down cables in rural areas and provide basic telephone services at subsidized prices, the reach of telecom services to remote areas has improved. The efficiency of the services has also improved. Urban In urban areas, the number of telephone subscribers is significantly higher than rural areas. This is because of not only the available infrastructure but also the presence of educated masses, which arc comfortable using technology and therefore use it more frequently. In fact, Urban India has grown to become dependent on telecom services. This is one of the reasons why most cellular service providers start their business in the cities first and then proceed to capture the rural areas. Service Sector Management: BBA-III. - 74 - On the basis of the product/service offered, telecom industry can be divided into following segments 1. 2. 3. 4. Fixed wire line/wireless services Mobile services Internet services Video telecom services Marketing strategy Telecom service providers need to design an appropriate marketing strategy to face the competition and survive in the market. Following are some of the important steps required by the management to design an effective marketing strategy. SWOT Analysis Telecom players should analyze their own strengths and weaknesses vis-a-vis the opportunities and threats in the market. Suppose a telecom player has an innovative service offer and efficient service personnel to market them. These are his strengths. However, say he lacks the resources to adopt advanced technology and promote the services aggressively. To overcome these weaknesses, it can always tie up with strong players in the telecom market or other related industries. For example. Birla tied up with AT&T to gain from the reputation of latter in the telecom industry. Telecom players should also carefully analyze the threats and opportunities posed by technology, competitors and the external environment, and formulate suitable strategies to overcome threats and exploit opportunities. Demand Forecasting Telecom players should conduct a market survey to analyze the demand for various services among the target customers. For example, when telecom companies saw the need for written message transfer from the sender to the receiver, they introduced the concept of SMS (Short Messaging System). Service Strategy: Telecom players should constantly upgrade their services to meet changing customers' needs. For example, cellular service providers initially offered only the basic communication services. However, customers now expect and demand subsidiary services like call waiting, call holding, automatic alerts, sports information etc. Pricing Strategy Telecom players need to determine the price of their services carefully. If they price their services too high, above the perceived value by customers, customers might switch over to competitors offering those services for lesser prices. On the other hand, if they price their services too low, they would not be able to recover the cost and thus get into losses. Normally, service providers in this industry use pricing methods like cost-plus pricing, target profit pricing, break-even analysis and prevailing value pricing. If all the players in a market are offering similar service and similar supplementary services and other benefits as well, a telecom player aiming to penetrate the market has to price its service lower than others. Sometimes, government policies and regulations prevent telecom players from having control on price factor. For example, in India. TRA1 (Telecom Regulatory Authority of India) wields control over the telecom industry. Positioning Strategy Telecom players need to identify the different segments that need different services and position their services for die targeted segments. When there were only a few players in the mobile communication services segment, the tariffs were very high. Airtel positioned its services exclusively for the higher-income segment. At that time. Airtel charged Rs. 16 per minute. When the tariffs were reduced after many private and government players entered cellular services market, pulse rates came down. Airtel then repositioned its services for the common man. Service Sector Management: BBA-III. - 75 - Promotion Strategy Telecom players should choose the promotion medium depending on the kind of services they offer. For example, in India, if a telecom player wants to target young people belonging to the middle and upper class families, they can choose a medium like the Internet or billboards near colleges, parks, restaurants, movie theaters, etc. Moreover, telecom players need to allocate budget for advertising across different media wisely. Thev have to determine the money to be spent for advertisements on TV, radio, newspapers, magazines, billboards, and other media. When Airtel introduced pre-paid cards that customers could choose depending on their monthly budget for communication services, it advertised in all kinds of media with special emphasis on TV. Such events enable organizations to generate awareness about their services among target customers. Telecom players can also advertise their services by setting up attractive service outlets. In addition, they distribute signboards to retail stores marketing their services. For example. Hutch gives signboards to retail stores that sell its prepaid phone cards. Implementation Framing the marketing strategy will serve only half the purpose of the organization. It is only when the strategy is implemented successfully that the organization realizes its goals and objectives. However, management often faces many challenges in implementation. Strategies are based on certain assumptions regarding the market potential, demand, and competitive environment. Telecom industry, where technology and customer expectations change fast, all these variables also change rapidly. Therefore, the management has to continuously monitor the telecom environment, revisit their strategies from time, and revise their plans and targets accordingly. Marketing mix Unlike manufacturing organizations that focus on the four P's of the marketing mix, service organizations need to concentrate on seven P's. i.e. product, price, place, promotion, people, physical evidence and process. Let us discuss how telecom service providers attempt to design these seven P's to constitute appropriate marketing mix and face the challenges in the telecom industry: PRODUCT/SERVICE Technology and the changing needs of customers have prompted the telecom industry to introduce different products, services and their variations to the customer. This has also helped some of the players create a market for their services, instead of competing with other players in the cluttered market. However, telecom players are forced to continuously introduce innovative services to sustain and thrive in the highly competitive market. The various products and services offered by telecom industry are discussed below. Fixed land line/wireless services Fixed landline service allows customers to communicate only from a particular place. The common landline connection offered by BSNL and other players is the basic service. Fixed wireless service offers more mobility than the fixed landline but that also has its own limits. Fixed land line/wireless services offer following services to customers: è Short distance services: These services allow users to communicate with people within a given region. è Long Distance services: Long distance services can be further divided into NLD and ILD services. NLD (National Long Distance) services allow a customer to communicate with people residing anywhere in the country. ILD (International Long Distance) services allow the customer to communicate with people residing anywhere in the world. Mobile services Mobile services allow customers to communicate while on the move. Mobile service providers divide a region into cells and establish a radio base station (RBS) in each cell. All RPSs are connected to a central switching center from where the entire system is monitored. Mobile Service Sector Management: BBA-III. - 76 - service providers offer limited mobility and roaming facilities. Limited mobility allows users to communicate within a given area. Roaming facility allows users to communicate over the mobile, wherever they are in the country (international roaming is also offered by some service providers). For example, a customer from Mumbai can use his mobile effectively even when visiting Hyderabad using the roaming facility. Mobile services can be categorized as follows: Cellular phone service: It includes satellite mobile communications service, in-flight telephone service, packet communication service and cellular services. Personal Handyphone System (PHS) service: Personal Handyphone system (PHS) works as a cordless phone at home and as a mobile phone outside. PHS services are offered on personal digital assistants (PDA) and notebook PCs. Pager service: It enables users to receive text messages. The person who sends the message bears the cost while the person owning the pager pays subscription. This service is now also available on mobile phones in the form of SMS service. SMS service has become a great marketing tool and is being used by many companies to promote their products/services. Companies conduct contests where the audience/customers are required to respond through an SMS. Internet It allows people to access information including text, voice and images from anywhere in the world and in real time. For example, a person in India can send written messages to his friend in the US. talk to him and even view the image of his friend on the computer monitor. Video telecom services They include video conferencing, videophone, videotext, etc. They are used by various sen ice providers including road transportation, railways, airways, corporates, banks, hotels, educational institutes and government departments. PRICE Service providers can use cost-based, competition based or demand-based pricing. Most service providers in the telecom industry today are resorting to competition based pricing, which has led to low prices of the services. This has proved to be quite beneficial for the customers, but the telecom companies are struggling to make profits. In the fixed line industry, customers have only one option of payment, that of post-paid. That is, customers pay a fixed amount as rent and the usage charges at the end of the billing period, in cellular industry, service providers offer two options to customers, pre-paid and post-paid. In case of prepaid service, customers buy a card available from retail outlets to activate or recharge their service. The price of the card covers the rent fixed by the service provider plus the cost of certain amount of airtime. For example, Airtel offers different cards with different amounts of airtime and allows its customers to choose from them depending on their need. Though initially, prepaid service was available only for mobile phone users. BSNL is now making prepaid service available for landline users also. In case of postpaid service, depending on the number of calls made by the customer and other services used by him, a detailed bill is prepared and sent to the customer. The total amount to be paid by a customer per month depends on the rent and the services used by him. The customer can make the payment by cash/cheque/credit card at one of the service provider's outlets. Some service providers also allow online payment through Internet. BSNL and MTNL for example allow their customers to make online payment. PLACE When DOT/BSNL was the only service provider, customers had to go to different locations for different services. Applications for new telephone connections or for transferring a connection from one place to another were accepted only in one major telephone exchange located in the city. Bill payments were accepted in local telephone exchange office located in certain areas. One had to personally go to the office, stand in the queue and make the payments. There was another department for receiving complaints. It took a long time, even a year, to obtain a telephone connection. Complaints remained unattended for several days after a customer registered his complaint with the local telephone exchange. Service Sector Management: BBA-III. - 77 - After the entry of private players like Tata and Bharti, things have improved. Most private players have offices at various locations and provide multiple services through them. They are also accessible through the internet. BSNL too set up offices at multiple locations to accept applications for new connections, transfers and payments. For example, Mobile service providers like Airtel. Hutch and Reliance Infocomm have one-stop shops where customers can purchase handsets, get new connections, subscribe to various value-added services and pay their bills. PROMOTION Telecom service providers use direct marketing, advertisements in newspapers, T.V., Radio, billboards in public places, etc. to promote their services. In 2002, Airtel used a TV commercial endorsed not by film stars or sports stars but by a successful music composer, A.R. Rahman to promote its brand. Rahman also composed five exclusive symphonies downloadable as ring tones for Airtel users. Telecom services also sponsor some contests or events to attract public attention and gain wide publicity. For example, in 2003. Reliance Info sponsored a contest for a successful Bollywood film, Kal Ho Na Ho. Owing to the intense competition in the cellular service sector, the promotion campaigns are quite innovative. Hutch for example launched an advertising campaign using a small boy and his pug, which caught the attention of customers. Hutch also offers discount coupons to its customers, to be availed at various restaurants and lifestyle stores across the city. This helps the company retain its customers and also attract new ones. PEOPLE Customer orientation is crucial to telecom service providers in winning new customers t and retaining the existing customers, when customers report any problem with the service, service provider should send people immediately to get the problem rectified. However, when BSNL/DOT enjoyed monopoly, service personnel did not turn up for days together even after customers reported a problem. The fact that it was the only service provider resulted in excessive load as well as complacency. However, with the entry of private players like Tata Teleservices into the industry, things changed. The new private players emphasized customer satisfaction. They ensured that their service personnel answer customer queries promptly and professionally and attend to their problems immediately. This has brought a change in the working of the telecom industry as a whole. PHYSICAL EVIDENCE Telecom service is intangible. A user cannot judge the quality of the service offered by a service provider unless he uses it. Telecom service providers however offer some tangible products to customers to service as physical evidence. They provide customers with a telephone directory that includes names and addresses of all their subscribers. Every year, an updated directory is provided to all subscribers free of cost. However, mobile service providers do not provide such directory because mobile phones are considered personal devices. Reliance Infocomm. However, makes the information about mobile numbers and names and addresses of its subscribers available on reliance network. Telecom service providers also focus on the voice instrument given to customer. When Tata Teleservices entered telecom sector, it gave sleek and attractive looking phone instruments to its subscribers to compete with the phone instruments supplied by BSNL at that time. Later, BSNL also began to focus on the looks of phone instruments given to customers. Telecom service providers also focus on ambience of their service outlets. Reliance Info invests about Rs. 30 lakhs to one crore on building its service outlets. PROCESS Telecom service providers should offer reliable, continuous, quality service to customers. When Tata Teleservices entered the telecom industry, its sales executives visited individual homes, shops and organizations identifying people in need of a phone connection and quality service. If a customer asked for a phone connection, he got it within three days. Now BSNL has also improved its service processes. It has a computerized system that receives complaints from customers round the clock and service personnel attend the customer within 24 hours. One can also obtain the bill information by contacting the number provided for the purpose. Telecom service providers also send detailed bills on request, describing the number called, amount of time spent on the call and the charges incurred. They should however ensure that errors are not committed in billing. This can be a major source of dissatisfaction for customers. In the past, many customers had complaints against BSNL of overcharging them. Some customers who could not settle the issue with BSNL got their phone disconnected and switched to other players. Service Sector Management: BBA-III. - 78 - Therefore, telecom players should strive to send error free bills to customers. They should continuously strive to improve their service processes. However, telecom service providers should try to achieve improvement in service process without incurring additional costs in doing so. This is especially important because of increasing competition in the telecom sector. Service Sector Management: BBA-III. - 79 - COURIER SERVICES The concept In today's business environment, the value of time is immensely important. The changing macro economic factors such as globalization of markets, removal of barriers on trade and business and increased competition have enhanced the need of delivering goods and services in timely and reliable manner. The development of Indian express industry can be dated back much earlier; however the decade of eighties saw the real entry of professional players into this market. Since then the industry has been growing at a steady rate and providing services to the customers at large. In this report the term “Express industry” comprises courier companies providing express and door-to-door pick up and delivery services for documents and non-documents shipments other than freight to various domestic and international destinations. Domestic services would include express and door-to-door pick up and delivery services to the various destinations in India through air and surface mode. The international services would include pick up and delivery of inbound and outbound shipments to India mainly through air. The consignments handled by express companies can broadly be classified into two types’ viz. documents and non-documents. Any material comprising of paper such as correspondence, bill/invoices, brochures, catalogues, manuals, annual reports, account details, books, files etc. are categorized as documents. The non documents consignment would include items that may/may not have commercial value such as samples, CKD units, small machineries, electronic parts and goods, spare parts. The Express industry in India is sustained the growth with emerging business opportunities in various user sector. Liberalization of Indian economy and integration of international trade has attributed to the sustained growth in Express industry. The growing customer requirement and scaling up of operation has led to the heavy investment by the express industry in infrastructure set up, hub and new technology. The Express industry has witnessed fundamental changes in its composition over the past few years, owing to fierce competition in the business. The international sector now constitutes to 41% of the total revenue, as compared to over 50% market in 1990s. During past 4-5 years new association and strategic sales arrangement have been made between companies. Indian Express industry comprises large organised service providers, EMS Speed Post (Product of universal postal union), regional semi-organised service providers and local un-organised service providers. There are over 2000 express companies operating in this space. The Indian Express industry encompasses service providers, rendering time bound pick-up and delivery services of documents and non-documents (commercial parcels, excluding freight). Growing business requirement for time bound reliable delivery has fuelled the growth of the industry and many new companies have entered into business to harness the emerging opportunities. The industry has sustained the growth during subsequent period. Opening up of Indian economy coupled with integration of international trade and business requirement for focusing on core competence have opened up new vistas of opportunity for express companies as express service providers in finance and service segment and 3rd party logistics service providers. The express market in India can be characterized by the existence of organised, semi organised and unorganised players. There are over 2,000 express companies operating in India. About 20 companies are in the organised sector, 25 in semi-organised sector and others in unorganised sector. Organised Sector: These service providers operate in domestic and international markets. This sector also includes service providers in international niche markets. Semi-organised Sector: Operate by and large in the domestic sectors, and has a reach within limited geographical area. This also includes operators catering to centre-specific niche markets (inter-city). Unorganised Sector: Operate in local (intra-city) markets. Service Sector Management: BBA-III. - 80 - The organised sector dominates the express industry in India, accounting for 60% of the market in terms of revenues. The semi-organised sector accounts for 30% of the express industry market size. The share of EMS Speed Post is estimated at about 10% in FY’ 2003. The present market is estimated at Rs. 2,493 crore. The domestic market constitutes to about 59%, valued at Rs.1,468 crore. The international market constitute of 41% of the total industry, valued at Rs. 1,025 crore. In the past, people had to depend on government's postal service and transportation service for moving their freight. The delivery took lot of time and people had to go to the post office, railway, or shipyard to receive or trace their packages. Some private individuals operated their own vehicles to offer speed and convenience to customers. People who had to deliver packages urgently handed them directly to airlines to be carried as cargo on passenger airlines. Passenger planes traveled to limited destinations, which limited their scope. Fredrick Smith, an entrepreneur identified the opportunity and established Federal Express (FedEx) in 1973. Smith operated flights exclusively for cargo and offered home delivery and pick-up services. The business model was a big hit and there was no looking back for the company. Many other companies imitated the model with their own fleet and value-added services, and led to the growth of courier industry. In this chapter, we will discuss the characteristics of courier industry, marketing segmentation, marketing strategy, marketing mix, recent trends in global courier industry and Indian courier industry. The major domestic and international service providers are: Airborne Express (I) Pvt. Ltd. GR International Couriers AFL Pvt. Ltd. Grand Slam Express Pvt. Ltd. Aramex India Pvt. Ltd. ICC Worldwide Add Quality Solutions Jeena & Company Blue Dart Express Ltd. Network Express Service Pvt. Ltd. Continental Air Express Pvt. Ltd. Overnite Express Ltd. DHL Worldwide Express (I) P. Ltd. Overseas Courier Service DTDC Worldwide Express Ltd. Prakash Air Freight Pvt. Ltd. Esquire Express (I) Pvt. Ltd. Skynet Worldwide Express Pvt. Ltd. Expressit Logistics Worldwide Ltd. Skypack Service Specialists Ltd. Federal Express Corporation Suntika Couriers Pvt. Ltd. First Flight Couriers Ltd TNT India Pvt. Ltd. UPS Jetair Express Pvt. Ltd. Service Sector Management: BBA-III. - 81 - Characteristics of courier industry Before entering the courier industry, a player should know the characteristics of the industry and then evaluate his own ability to survive in the industry while competing with other players for a market share. Courier industry has the following characteristics: Entry and Exit Barriers The courier industry is not heavily regulated by government. The state-owned package transportation service providers fail to give tough competition to private players unlike the telecom industry where the stale-owned service provider is a major competitor. However, the service provider has to be prepared to invest heavily in infrastructure, distribution network, technology and manpower training. In addition, a courier service organization that wants to serve customers with overseas transportation requirements needs to spend on brand building and develop tie-ups with international carriers like UPS, FedEx and DHL. This is because it might be practically impossible for the company to set up a strong global network on its own. Though there are no barriers set up by the government to exit the industry, the players may face some difficulties if they decide to exit. This is because courier service organizations tend to invest heavily in infrastructure, logistics and brand building. They may find it difficult to get the right price when they want to wind up. However, local players who do not make huge investments in infrastructure and assets, but rely on the local network, can quit the industry with ease. Dependence The growth of courier industry is highly dependent on the growth of other industries, rate of growth of economy, growth in imports and exports business, etc. If there is decline in any of these, there will be a decline in growth of courier industry as well. This is because, apart from individual customers, the service provider mostly serves other marketers. Therefore, their business is dependent on other businesses and their growth. Customers Customers demand quality service. They want the service provider to deliver their packages within the promised time and in perfect condition. In addition, they want the service at competitive price. They also expect the service provider to provide the latest status of their shipping whenever they contact the customer service representative for information. They expect the service provider to provide a pick-up and drop point within their reach Apart from these expectations, courier service providers also need to face intense competition from both organized and unorganized players in the industry. Market segmentation In order to be able to serve customers effectively, courier service providers need to segment their market and understand the needs of customers in each segment. Based on this understanding, they can decide which segment to serve and how to position the service in the customer's mind using the seven P's. The market for courier industry can be divided into following segments: Individual This segment consists of personal letters, envelopes, packets and cartons that need to be delivered to various destinations within the service limits of the service provider. Sometimes these deliveries may also need to be made to other countries in the world. For example, customers can send Alphonso mangoes to their dear ones abroad, using the special services of DHL; called the DHL Mango Express. Corporate This segment consists of official letters, documents, product samples, products etc. to be delivered to destinations within the country or outside the country. For example, a chemical company may send samples of material prepared by it to a client iii the same country and an equipment manufacturer may send a machine to overseas client on order. Corporate also send special gift to their clients when it is festival time. Small and Medium enterprises Service Sector Management: BBA-III. - 82 - This is also an important segment for players in the courier industry. Though leading players in the courier industry like DHL ignored this segment initially, they are now concentrating on this segment as well in a bid to expand their business. Based on the type of delivery, courier industry can be divided into the following segments: Same day delivery: In this segment, goods are delivered to the destination the day they are collected from the customer. However, the same day service is offered only to destinations within the country. Overnight delivery: In this service, shipments arc delivered the next day or later depending on the distance to be covered. Marketing strategy People opine that courier service is simple and one can just start earning profits by buying a few vans and delivering letters and parcels using them. However, to compete and survive in courier industry, service providers need to be professional, customer oriented, and capable of delivering shipments to various destinations safely and quickly. At the same time, they need to ensure that they maintain their profitability. This needs a well-formulated marketing strategy. The strategy should include the following elements: In order to come up with possible solutions to counter the challenges by courier service provider it is necessary to understand the environment under which Speed Post is operating. This can be done by understanding what are the Strengths, Weaknesses, Opportunities and Threats faced by it. Strengths Weakness Yet another government organization Levels of service not at par with competition Positive consumer perceptions need reinforcement Threats Good network especially domestic Price – a definitive advantage Minimum weight – a unique feature Opportunities Domestic market (Primary) – Good scope for growth Can use rates and minimum weight to advantage Can capture potential markets more easily Competitors more market customer driven Faster response by competition to market needs Customer expectations going up Perceived as less customer driven Fluctuating air tariff rates If courier service provider has to achieve the above objective, it will have to do the following from the above Strengths, Weaknesses, Opportunities and Threats (SWOT) analysis, Strengthen its Strengths Neutralise its Weaknesses Convert Opportunities into Strengths Tackle the threats efficiently and effectively Strengthening the Strengths To further strengthen its strengths courier service providers will have to promote them efficiently and effectively to keep the target audience aware of its unique characteristics. For this purpose it will have to design its promotional campaign on the following basis, The campaign should be focused on the audience to, Service Sector Management: BBA-III. - 83 - o o o Inform Persuade Reinforce To facilitate the smooth implementation of this goal, the following steps will be necessary, o Clear definition of marketing and advertising goals o Themes and schemes which customers want and not Speed post wants to sell o Proper distribution and communication of the promotion o Experimentation with new approaches This will help courier service providers to have a better brand recall rate subsequently resulting into sustainable increase in growth rate in business for the long term. Neutralizing the Weaknesses The areas for improvement or weaknesses of courier service provider are primarily related to its staff and the bureaucratic chain involved in business. Because of this the customers are though assured but yet not willing to treat Speed Post as a long term, productive, effective and efficient business partner. For this purpose, it is primarily important that the Internal Environment of Speed Post be made as competent, determined and performance oriented as the workforce of any other competitor companies in the industry like, FedEx, DHL, First Flight etc. So HR policies and practices have a major role to play in this field. The HR department can, Hire the best people for the job Develop people to develop service quality Motivate them for personal and performance development Empower them to take decisions Retain them to increase skill set competency Develop Internal Support System to facilitate their working Promote and encourage team work Develop a transparent organization culture Measure and suitably reward performance of each employee Treat employees as the biggest customer. Motivated and happy employees will lead to higher profits as the Cycle of Success will develop in the organization leading to higher level of business from higher level of retained and new customers. It is difficult to remove the problems arising due to the hierarchal chain, but proper empowerment and motivation will enable employees to be more competent and result oriented in the job. This will help courier service providers in neutralising the effect of its weaknesses in its overall performance in the industry. Converting opportunities to strength - Service quality GAP model Courier services will have to take the help of People and Promotion to help itself achieve the huge potential in the market. This would be effectively done by closing all the service gaps in the service delivery, i.e. Management Gap: Gap between Management Perception and Customer Expectation Quality Specification Gap: Gap between Management Perception and Service Quality Specification Service Delivery Gap: Gap between Service Quality specification and Service Delivery Market Communication Gap: Gap between Service Quality Specification and Service Delivery Perceived Quality Gap: Gap between Expected Quality and Experienced Quality Service Sector Management: BBA-III. - 84 - When there are no service gaps in the organization, it will be able to tap the underlying potential and growth prospects in the market. Tackling Threats To tackle threats it will be necessary to focus on maintaining the quality of the products, services and process of the business. These dimensions would be, Reliability of the service Responsiveness of the Service to customer needs Assurance of timely delivery under specified norms Empathy towards the customers problems Use of tangibility spectrum in service delivery Courier service providers can achieve this by, Ensuring Top Management Support Proper benchmarking standards Induction of Self Service technology wherever possible Proper complaint handling system Promoting itself as such, that quality is perceived by the customer Working so as to reflect Quality in every activity Empowering employees to monitor quality standards Quality aimed at customer retention Relationship surveys Post transaction surveys Developing quality system with adequate human support, system support and proper feedback norms These strategies will help courier service providers to get a better market share in the industry. Marketing mix Customers in courier industry value speed and safety. Now-a-days corporate customers look at courier companies to provide them complete logistics solutions. In order to serve both individual and corporate customers efficiently, courier companies need to give special attention to all the elements of marketing mix. Let us discuss these elements in detail now. Product/Service The core service offered by courier companies is moving of documents and goods from one place to another. This service is packaged in different ways by different courier service providers to differentiate themselves from competitors. For example, Blue Dart offers door-to-door delivery of all documents and packages weighing below 32 kg to destinations in India, Bangladesh, Bhutan and Nepal. Some goods are perishable or their delivery needs to be made immediately because of commercial reasons. For such needs, most courier companies offer same day delivery service. Courier companies should also focus on branding their services. Some domestic companies enter into partnership with global companies to strengthen their brand and the perceived value. All courier companies have their own logos and attractive slogans that help customers recall the service associated with them quickly. For example, Blue Dart says. "Solutions for peace of mind." Price The type of product being delivered, its weight, the place of deliver., the urgency of delivery, the mode of shipment used, regulatory clearances required and tariffs charged for them, etc. determine the price of courier service. Most corporate clients have a special arrangement with courier service providers. The client gives certain minimum amount of business even month to the service provider and enjoys a special discount on the shipping charges. The service provider in turn enjoys assured and repeated business. Service Sector Management: BBA-III. - 85 - Competition can pull down the prices in courier industry. However, the market players should ensure that the minimum costs that they incur on the delivery of shipment arc recovered If the players reduce prices below this level, it will lead to unhealthy competition and hits the bottom line of most players in the industry, in India, Elbee Services, one of the top players in the courier industry, recorded huge losses and took considerable time to recover. Place Place plays a prominent role in courier industry. Customers prefer their products and packages to be picked up and delivered at their doorsteps. Therefore, courier companies need to develop an extensive distribution network in order to facilitate transportation of shipments to and from various destinations. For example, FedEx has 1250 service centres worldwide. Further, it has partnerships with domestic courier companies in various countries to be able to deliver shipments to various locations in those countries. Blue Dart has franchises and regional service participants (RSPs) to reach remote areas in India. Franchises collect documents and packages from customers and drop them at the central hub. In areas where franchises could not be established because of lack of enough demand for services. RSPs collect packages for Blue Dart. Promotion Courier companies generally emphasis on speed, safety, reliability and efficiency of their services. They release advertisements in newspapers, magazines, TV, Radio and Internet. Blue Dart emphasis on its ability to deliver faster because of its own fleet and airfreight, and multiple service centres. The company also advertises the latest technology used by it and the advantages offered by ii DHL mentions the list of offices it has in different countries in advertisements, which is a way of communicating to customers about its extensive network and scale of operations. Courier companies also advertise and publicize their international tie-ups to promote the companies and their services. They also launch special promotional campaigns like the DHL's mango express. If the company delivers "ripe-in-time" Alphonso as promised and satisfies the customers, it can successfully add new clients to its existing customer base. Physical Evidence Courier companies primarily offer a service that is intangible. Therefore, they attempt to bring tangibility through other aspects. For example, some courier companies make sure that their offices arc located in areas that are easily accessible to individuals and corporate customers. They also keep their offices neat and well furnished to create a positive impression in customers' minds. For example, Blue Dart maintains well furnished and centrally air-conditioned offices. It even offers free pick-up services to customers. Courier companies also focus on packaging. The products to be delivered are packed carefully and neatly to prevent any damage to the contents. Most courier companies also have their own web sites, which enable people to track the status of their shipping. This is one of the best tangibles that can be offered to the customer. Blue Dart even allows customers to view the proof of delivery on its web site - a document confirming the date and time of delivers' and signed by the receiver. The documents are also delivered physically to the customer. For some corporate customers, courier companies allow payment after delivery of the package. ; People In the courier industry, service personnel interact with customers. Therefore, courier companies need to give special attention to people training. People at the help desk and the marketing executives need to be trained in communication and interpersonal skills. People handling operations need to be trained to use the advanced equipment and provide logistics solutions to corporate customers. The most important element of training is to be customer oriented. In its absence, the courier company would fail to satisfy the customer and lose its business eventually. Courier companies need to strive to retain people by implementing proper compensation and incentive systems. Process The different steps that constitute the process in a courier company arc picking up documents/packages from individual customers, sorting them according to their destination, placing them in appropriate modes of transportation, taking clearance from regulatory Service Sector Management: BBA-III. - 86 - authorities, keeping the customer updated of the status of shipping, delivering the shipment to the right destination and mailing confirmation to the sender. Indian courier industry In India, DHL, Blue Dart, Elbee. Sky Pak and AFL are major players in the courier industry with Blue Dart in the lead position. AFL has recently withdrawn from international operations and decided to restrict its operations to freight transportation within India. Though there arc more than 2000 unorganized players competing with these players at local and national level, the unorganized sector contributes only 36% of total revenues of the industry. Among the major players, Blue Dart owns three Boeing 737s. This enables the company to carry large volumes of packages and make overnight deliveries It can deliver a package submitted at its office by a customer in the evening to any destination (except the very remote and isolated areas) in the country the next day before noon. It also has strategic alliances with various airlines and courier companies of various countries to serve international traffic. It also offers logistics and ecommerce solutions for corporate customers. Elbee has its own fleet of vehicles but not flights. It depends on Indian airlines and Jet Airway to carry its freight. Both Blue Dart and Elbee serve more than 1200 destinations in the country and have international tie-ups. Blue Dart tied up with DHL while Elbee tied up with TNT for international traffic. Elbee, which performed poorly and went into losses in 1999, is recovering slowly with the improvement in the Indian economy and commerce. Blue Dart has registered an impressive .growth rate. It made profits of Rs.41 crore during the period 2003-2004 and its profitability increased by 26% from the previous year. Skypak and Gati are also picking up with economy still improving, it remains to be seen whether the smaller players can outperform the industry leaders. Recent trends in courier industry Courier industry is undergoing drastic changes because of the changes in economy and advances in information technology. Let us discuss some of the recent trends in the courier industry and their drivers: Technology Advances in technology have transformed the way courier companies operate. Courier companies are able to offer value added services to customers with the help of technology. Apart from ensuring a faster and safer delivery of shipments, they are able to conduct transactions and other business processes electronically. By doing so, courier companies arc able to cut time and costs. They can also avoid the need to hire hundreds of additional employees by using IT intelligently. Some advanced information systems used by courier companies include COSMOS (Customer Operations Service Master Online System), DADS (Digitally Assisted Dispatch System) and ASTRA (Automated Sorting Tracking Routing Aid System). FedEx uses COSMOS to track packages from the place of pick-up to destination. ASTRA is used to provide accurate and reliable package delivery information to customers. DADS allows couriers to determine the right route they should use to minimize the time taken for delivery. Software companies are coming up with more solutions for courier companies to serve customers effectively. Some global courier companies in fact have their own IT department to find innovative solutions for their problems. Globalization With most countries opening up their economy, courier industry is one industry that has gained immensely. In courier industry, about 90% of the costs are fixed costs. As the volume of business goes up the revenues earned, directly contribute to the bottom-line of companies. Hence, courier companies can earn huge profits by expanding their business globally. They can get into strategic tie-ups with local companies in different countries to expand the network. This results in marginal or no increase in costs, but good returns. Some of the companies that have global operations are FedEx, UPS, DHL and TNT. DHL, which started with a small temporary office in the US, gradually rose to the level of national player and then to international player. Service Sector Management: BBA-III. - 87 - In India, courier companies have limited their expansion to countries like Bangladesh, Bhutan and Nepal. Very few players compete with the existing global giants in courier industry. Most large players operate through strategic alliances or joint ventures to limit their investment costs. For example, Blue Dart has a tie-up with DHL and Elbee has a tie-up with TNT. Hence, the global courier industry is consolidated with a few companies dominating the industry. Global courier companies offer not only the core services of moving freight from one place to another, but also higher-end services like logistics solutions for corporate customers. Many corporate firms, which have recognized the potential of these companies, have outsourced their supply chain management operations to them. However, some countries try to protect their courier industry from global competition. For example, South African government prevents foreign players from operating in the under-1kg letter and parcel market Service Sector Management: BBA-III. - 88 - AUTOMOBILE SERVICES With increasing sophistication in transportation, automobile servicing is emerging as an important service-generating sector of the economy. A number of skilled, semi-skilled and manual workers are found getting employment opportunities. Automobile manufacturers and dealerships offer after-sales service and therefore one category of service centers in sponsored by the concerned company. The development processes here are systematic and these service centers develop as a formal sector. On the other hand, there is a second category that has developed independently and in an unorganized way – which could be termed as the informal sector. Automobile servicing in India The automobile servicing business in India undergoing a transformation. Steps towards creation of national chain of organized workshops are underway that is likely to change the nature of the vehicle servicing market. Most of the changes in the Indian market is attributed to the economic liberalization and opening up of the automotive market. Moreover, the vehicle servicing market is no different to this trend. The changes are taking root now and setting the trend for the future. Prior to the entry of global automobile manufacturers, the Indian automobile market was dominated by home grown companies like Hindustan Motors (HM), Premier Automobiles Limited (PAL) and the people's car manufacturer Maruti Udyog Limited (MUL) for passenger cars and Ashok Leyland and Tata Engineering in the commercial vehicle segment. Bajaj Auto, Hero Honda, Escorts Yamaha, TVS Suzuki, and LML were the companies active in the scooter and motorcycle market. The servicing needs of these vehicles were undertaken mostly by roadside mechanics and a few organized workshops. MUL set up a huge chain of authorized service centers covering the entire country to service its vehicles. However, as the competition in the new car market intensified and profits margins were squeezed MUL viewed servicing as a money-spinner for the entire operation. The vehicle servicing market is highly unorganized. The participants in the vehicle servicing market are new vehicle dealer's workshops, authorized service centers of vehicle manufacturers, some organized service centers, and roadside mechanics. Vehicle servicing habits differ based on the socio-economic profile of each individual customer. Commercial vehicle owners are highly price sensitive and extensively use roadside mechanics for servicing needs. The number of organized service centers also remains low along national highways and the hinterland. This has lead to the creation of the unorganized segment to fill the gap with quick, flexible and lower priced servicing. Two-wheeler owners historically have used roadside mechanics for servicing as manufacturers of these vehicles focused on their core business, which are vehicle sales. As the market turned competitive, vehicle manufacturers used servicing infrastructure and cost of service as a key differentiator in their overall sales strategy. Currently only 10-15 percent of two wheelers return to the authorized service center for their servicing needs post warranty. It is fair to mention that roadside mechanics are the dominant competitor in the market for vehicle servicing. Vehicles introduced by new entrants like GM, Ford, Hyundai, Honda, Toyota and Volvo were serviced exclusively through the company service centers. This was the first step towards organizing the servicing market. The absence of a national chain of service centers was the missing piece and the entry of TVS Xpress and Cummins Suraksha fills the gap in the market place. Vehicle owners have had two options - one is to use the authorized service centers (ASC's) of vehicle manufacturers or the roadside mechanics for their repairs. ASC's offered customers standardized service at costs predetermined by vehicle manufacturers that ensured transparent operations. ASC's were equipped with a good infrastructure like customer waiting areas, well lit work shops, trained mechanics, proper tools and equipment needed to perform repairs, genuine parts and transparent billing. ASC's fulfilled all customer needs except that all this came at a Service Sector Management: BBA-III. - 89 - price. The huge premium charged by vehicle manufactures for their genuine parts and the cost of labor meant that customer had to settle for a higher bill. On the other hand, the roadside mechanic used spare parts openly available in the aftermarket that was cheaper compared to genuine spare parts. Most component manufacturers that supplied to vehicle manufacturers for their aftermarket operations sold the same component in the aftermarket. Availability of quality spare parts was not an issue. The roadside mechanics charged a lower labor rate for repairs and servicing and provided flexible delivery options. The relationship between the mechanic and the customer was based on trust. The problem with roadside mechanics was the lack of transparency in operations as customers were short charged in components used. Roadside mechanics often interchange components from one vehicle to another and also use alternate brands but charge the customer for original equipment quality brands. The structure of the market created a gap in terms of customer's needs and expectations and the current fulfillment of these needs. Companies like TVS Xpress, Cummins have positioned themselves to fulfill these unmet needs, - quality service using genuine, and OE quality spare parts at an affordable price. Need less to say, TVS and Cummins are the some of the best-known brands in India. The factors that are driving this transformation are increasing vehicle population, dominance of the unorganized segment and the ever-increasing gap between customer expectation and fulfillment. TVS Xpress was the first company to enter the car servicing market. Currently, the roll out has covered three states with a total of 55 service centers. Companies like MICO-Bosch and ACDelco have entered this market sensing good opportunity. TVS and MICO have a large aftermarket operation in India and vehicle-servicing business is a logical extension to their business model. TVS group companies also operate dealership for FIAT and Honda and bring in years of experience in automotive aftermarket distribution, component manufacturing, and servicing. Cummins has created a chain of five service centers spread across the country to provide repair and service for truck operators. The aim of Cummins is to provide one stop solution to the needs of truck operators. The plan is to increase the numbers of service centers to about 50 in a few years time to cover all the transit points along national highways. The two-wheeler market that has seen an explosive rise in sales over the last few years also has its share of market consolidation. Castrol, a company well known for its lubricants, has entered into the motorcycle servicing business with the roll out of its first workshop 'Castrol PrimaZona' this year. In the future, Castrol expects to have a presence all over India. Is the market rosy for these companies? There are issues that these companies face that can be attributed to growth pains. By following a gradual roll out process, these companies are learning from experience. Vehicle manufacturers' policies can also affect this market. Longer warranty on vehicles will restrict the potential market available. Vehicle manufacturers could also restrict the supply of components to the aftermarket thereby preempting the entry of competitors. The Shape Of Things To Come The servicing market in India will have to consolidate and organize. The national chain of service centers provides good quality service at an affordable price. As average vehicle age increases, vehicle manufacturers will find it hard to retain customers at their ASC's. Organized workshops can provide the required service level at lower costs. A collaborative effort between vehicle manufacturers and organized chains may be required as this may lead to reduced usage of spurious and counterfeit components leading to mutual gains. The success of these chains is sure to attract new entrants in this market. Need for marketing automobile services To improve quality of services: Qualitative improvements in the service mix of the service centers are necessary. Generally these centers provide maintenance, repairing, denting, painting and cleaning services. The application of marketing principles would help them in improving the quality of services. Service Sector Management: BBA-III. - 90 - User satisfaction: Servicing centers need to satisfy users and this is possible when they make quality services available. Increasing marketshare: The centers offering quality services coupled with competitive pricing succeed in increasing business which make it easier to increase market share. Maximising profitability: The important thing in marketing of automobile services is to pave avenues for generating profits. Marketing Mix While formulating the marketing mix, the automobile servicing centers need to go through different submixes. Product Mix: The product mix of automobile serving would include: Repair and replacement of spares Maintenance checkups – oil change etc. Warranty checkups Washing and cleaning services Air filling, checking, tubes repair and replacement Accident repairs – denting Painting Tyre alignment and balancing Greasing Modification services Heating and Air-conditioning system Electronics and electrical maintenance Battery Maintenance Pollution control Truck/Bus Body building services Teflon Coating Classification of Automobile service stations Depending on vehicle type: Two-wheelers Three-wheelers Four wheelers (Cars, vans, jeeps etc) Commercial vehicles (Trucks, buses mini-trucks etc.) Depending on authorisation: Service centers run by dealerships Authorised service centers (Franchisees) Roadside Garages/mechanics Express Service Centers: These help many stranded vehicles on the highways by sending across their repair man to the vehicle Depending on exclusivity Centres meant only for one brand of vehicles Centres that take up a wide range of brands Centres that service only one kind of vehicle (e.g. Only two-wheelers) Centres that service more than one kind of vehicles Depending on function: Washing and cleaning services Maintenance services Service Sector Management: BBA-III. - 91 - Repairs/Garages Accident repairs/Denting Paint Shops Tyres – alignment and balancing services Tyres – repair and puncture shops Air conditioning maintenance PUC centers Car washing – home service Price With the core product – sales of vehicles getting extremely competitive, most dealers and manufacturers have decided to go to the “servicing” route, thus opening up avenues for profits. However, automobile servicing remains a highly price sensitive sector. Most of the vehicle owners prefer to get their free servicing done during the warranty period at authorized service centers. But once the free servicing period is over, they abandon the authorized service centers and shift to roadside mechanics or independent garages. Only about 15% of vehicle owners prefer to get their vehicles serviced at authorized centers post the free period, due to high pricing. The authorized service centers are, naturally priced higher, due to the wide variety of services and conveniences offered at their centers. Authorised service centers (ASC) deal in volumes and their charges are significantly higher than roadside garages. Moreover, it is the high cost of spares that deter customers at these centers. ASCs use original spares that are exorbitantly priced. The same spares, available in the open market are relatively a lot cheaper. Garages, on the other hand, use these spares and save costs for the customer. However, competition between ASCs themselves are hotting up. In bigger cities, a single manufacturer has a number of ASCs. For example, Tata Motors has three ASCs in Nagpur. Though pricing is fixed for a number of routine jobs, they are under severe pressure from roadside garages to cut down on labour costs. Place Place plays a prominent role in the automobile servicing industry. Service centers run by dealerships are usually high-tech units with state-of-the-art infrastructure. They are automated to a fair degree. Customers prefer to take their vehicles closest to their homes and service, so companies prefer to appoint ASCs in various parts of cities. Maruti is one of the companies in India which has unparalleled service network. To ensure the vehicles sold by them are serviced properly Maruti had 1545 listed Authorized service stations and 30 Express Service Stations on 30 highways across India. Other automobile companies have not been able to match this benchmark set by Maruti. In fact, it is the vast network built by Maruti that has been helping it to maintain a stranglehold on the market share. People in smaller towns and villages prefer to buy vehicles that can be serviced easily. On the other hand, the unorganized sector works through garages or shops on the roadside. These, though not as well equipped as ASCs, charge less and offer flexibility to the customer. These units may even outsource certain tasks to other units – for example tasks like washing or welding may be done at other shops. Promotion Promotion forms an important part of automobile servicing – mainly due to increasing competition. Roadside garages do little promotional activity. Their promotion is mostly based on word-of-mouth publicity from existing customers. Their activity is based a lot on accessibility and nearness to the customer. Advertising: Advertising, though low key, is still an important part for ASCs. Most advertising is done by manufacturers themselves, with the franchisees sharing costs. In case of Bajaj Auto, advertising is handled locally by individual dealers, but the costs are compensated in part by the parent company. ASCs also use the Cable TV route as it is a lot more cost effective for them. Service Sector Management: BBA-III. - 92 - Direct Marketing: A few companies have adopted the direct marketing route too. Marketing personnel scout for vehicle owners and talk to them offering special membership schemes or discounts. Extended warranty: Dealerships offer an extended warranty scheme at a the time of purchase so that they are guaranteed that vehicles return to the service centers for an extended period of time beyond the usual warranty period. Organizing special camps: Most ASCs organize “free” camps like monsoon checkup etc. so that customers can avail thee benefits. Brochures and leaflets: ASCs from time to time can distribute leaflets and promotional material to potential customers. Membership clubs: Most manufacturers offer club memberships – so that they build in loyalty from their existing customers. In case of the Hero Honda Passport programme, members are offered points on every rupee spent on service centers. These points in turn offer them a number of privileges like discounts on spares and service, accident insurance etc. Promotional events: Many dealers organize events like musical night, cultural programmes etc. and offer their customers free passes. Tata Motors for instance organizes cultural programmes, where entertainment is mixed with information on their products. The Hero Honda passport programme too offers such benefits. Use of stickers: As a reminder tool, almost all garages and ASCs use bumper stickers once the vehicles are serviced. This helps immensely in brand retention. A few ASCs also put in stickers with their help line numbers so that customers can call them if they are stranded on the road. Telemarketing: As telephone numbers are already on records of dealers, they use them to call up vehicle owners explaining their services and special offers. SMS reminders: ASCs keep sending their customers timely reminders through SMS on their cell phones, letting them know that time is due to get their vehicles serviced. People In the automobile service sector, service personnel interact with customers. The business is mostly based on trust and the quality of service received. Thus people form an important part of the business. In case of roadside garages, the chief mechanic, usually the owner interacts with the customers. This relationship is usually built on trust so that he gets repeat customers. The quality of work here depends on the skills of his mechanic staff. With ASCs, the organisation is a lot more structured. An ASC is usually headed by a General Manager, who overlooks the operations of the unit. They are staffed with reception personnel who help customers with their doubts. A service engineer, is the one who interacts with customers, understanding and explaining technical aspects to the customers. He is the one, who prepares the job cards, provides cost estimates and overlooks the servicing of the vehicle. The auto-mechanics, who usually do not interact with the customers, are the ones who actually work on the servicing of the vehicles. These people are specially trained by parent companies about various technicalities. Their performance ultimately decides the quality of service received by the customer. Process The process in the automobile service industry varies from the informal to a completely structured one. Service Sector Management: BBA-III. - 93 - While roadside garages would have an informal procedure where the mechanics note down complaints and tasks to be done and provide cost estimates. They would then perform the tasks, do a quality check and hand over the vehicles. With ASCs, there is a formalised procedure to handle servicing. A typical process would be something like the below: The customer arrives at the ASC with his vehicle. A Service engineer inspects the vehicle, and prepares a job card. The job card would include details like free or paid servicing, tasks to be done, complaints etc. The service engineer will explain technicalities to the customer and provide him a cost estimate. The job card will also include details like existing fuel level in the vehicle, mileage, and accessories fitted (Car stereos etc.) The service engineer also provides a time when the vehicle will be ready for delivery. The vehicle now moves into the workshop where under the supervision of the service engineer, mechanics handle the servicing and repair procedures. A list of spares used is prepared and replaced parts are returned to the customer Once the servicing is complete, the service engineer inspects the complete list of work done and also takes a test drive. Once satisfied, the service engineer approves the tasks performed and prepares a bill for the entire service. The customer is then given “work performed” list on the car along with the bill. The customer is also asked to fill up a feedback form so that the quality of service can be gauged. Once the customer pays the bill, he is given a “gate pass” so that he can drive out the vehicle from the ASC premises. Service Sector Management: BBA-III. - 94 -