Service industry holds the key to growing robust economies

Three major contributors to economic income are agriculture, industry, and services. The latter has been growing in importance over time and expansion here has always been an indicator of economic health.

The services sector contributed about 54.41 per cent of the Kenyan GDP last year. Development in information technology, business services, banking, warehousing and insurance, distribution and logistics, education and health, tourism and recreation, finance, construction, engineering, and infrastructure, have been crucial to any economy.

The spectrum of services is varied and complex and understanding the nature and associated marketing challenges is a subject of great significance for marketers. Philip Kotler said, "If you don’t serve the customer, then your job is to serve someone who does it."

A service is any act or performance one party offers to another that is essentially intangible and does not result in ownership of anything. An offering of a service may or may not be tied to a physical product depending on the nature and type of service.

Services are mostly seen as benefits independent of any major physical product and without the transfer of ownership. Services are performed in interaction with a contact person who is treated as a physical resource and this interaction contributes to the quality of service and instantaneous consumption.

Service mix

The service mix suggested by Philip Kotler is one of the useful concepts in this direction. Pure tangible goods are offered by a seller without any accompanying service such as soap, salt, spices, bread, and other physical merchandise.

Some sellers provide tangible goods with accompanying services. Electronics, cars, computers, and other such advanced and highly engineered goods need a range of support services and hence the price offer could also include the cost of support services. Major service with accompanying minor goods and services is another concept.

Services such as transportation by air or road, banks, insurance, and financial institutions are examples of such capital-intensive industries, which require a basic infrastructure. But beyond that, the disposal and delivery are primarily of the service with a very minor component of goods.

Pure intangible services are that of a nurse, babysitter, consultant, physiotherapist and so forth. They do not require significant use of goods in order to be rendered. The primary characteristics of services that make a difference from goods or products are intangibility, inseparability, variability or heterogeneity and, perishability.

Service is a deed, activity, performance or effort that cannot be seen, felt, touched, tasted, or heard. It is experienced and the quality of experience is to be created by the seller. A buyer draws inference of service quality through pricing symbols, branding, resources used, people or service providers, and the place of service. Therefore the service providers' task according to Levitt is to “manage the evidence and to make tangible the intangible”.

This approach helps a buyer make the evaluation of service and observe the concrete benefits of the service rendered. Services are produced, distributed and consumed simultaneously. The service and the provider are inseparable.

Unlike physical goods, services cannot be transported and distributed by different agencies for consumption at a distance placed by the buyer. There is typically a close interaction between the service provider and the buyer as in the case of a barber, teacher, singer, doctor and so forth.

Direct distribution

Thus inseparability suggests that in the case of services only, direct distribution is possible. This fact further implies that there is potentially a limiting number of markets that the service provider can cater to.

The stress, therefore, should be laid on the use of IT, to provide adequate training to the service providers and helpers and technicians at the backend and the use of the best possible infrastructure and resources. Owing to the industrialisation of services, a lot of heterogeneity in quality can be controlled.

Variability in service quality can be reduced by a lot of measures such as standardising the services, and performance processes, investing in reasonable hiring-training procedures, using and substituting machines with labour, monitoring customer feedback and satisfaction, and other such practices and tools.

There is an element of perishability. If there is any lapse during production till the consumption of service, it will go to waste as it cannot be stored. For example, the vacant seats of an airbus, cinema hall or theatre at a hospital or education institute, always indicate the loss of potential revenue as they are perishable services.

During the Covid-19 pandemic, owing to lockdowns, the entire global aviation industry was affected. According to an OECD report, between April 2019 and April 2020, there was a 94 per cent drop in passenger traffic. This loss cannot be recovered due to the element of the perishability of service. 

Ideally, demand fluctuation in the service industry is another key aspect to be managed effectively. The answer to this challenge lies in yield management. That is, providing service at the right place at the right time in the right manner and right price to have the maximum yield of the service.

Academics have suggested a number of measures both on the demand and supply side for yield management in the service industry. Differential pricing for peak and non-peak demand periods is among them.

Others are the cultivation of non-peak demand by discounts and incentives, offer of complementary services during peak periods to waiting customers, use of a reservation system for regularisation of sales and offer of discounts for early reservation supplies and product, price, place and promotion are four factors of the marketing mix. The marketing mix of services has been extended by scholars to include three additional P’s of people, physical evidence and process management.

Service in its product form is seen as a bundle of packages of the core service, the auxiliary or peripheral/ facilitator services and the supporting services. The core service is the need-satisfying attribute. For instance, a room in a hotel is for the staying needs of the customer, whereas the facilitating services are mandatory features in the absence of which the service cannot be delivered meaningfully.

For example the attached bathroom, bed linen, lighting, and water availability. The supporting services do not facilitate the consumption of the core service however they increase the value of the service for instance the ambience, cleanliness, and help desk. Augmented service offers include exemplary staff and customer care. All these are important in attaining customers and maintaining repeat customers by having an edge in service over the competitors.

Ritesh Barot is a business and financial analyst [email protected]