Unit 1: Introduction to services

A service is any act or performance that one party offers to another that is essentially intangible and does not result in ownership of anything (Philip Kotler).

Reasons for growth

• Rising incomes: households spend more on leisure, travel, dining, health and education.
• Technology and the internet: UPI payments, e-commerce, OTT, app-based cabs and food delivery.
• Outsourcing: firms buy logistics, IT, security and housekeeping instead of doing them in-house; India's IT-BPM exports.
• Liberalisation and privatisation: banking, insurance, telecom and aviation opened to private players after 1991.
• Demographic change: nuclear families, working women and an ageing population create demand for childcare, healthcare and convenience services.
• Government focus: Digital India, Skill India and tourism promotion.

Contribution to the Indian economy

• Services contribute over 50% of India's Gross Value Added and are the largest sector.
• Largest recipient of FDI inflows (financial services, IT, telecom, trading).
• Major share of exports through IT and software services.
• Large employer in urban areas — retail, transport, hospitality, healthcare, education.

A fifth characteristic often added is lack of ownership — the customer gets access or experience, not ownership.

Classification of services

• By recipient and nature (Lovelock): people processing (haircut, surgery), possession processing (car repair, laundry), mental-stimulus processing (education, consulting), information processing (banking, accounting).
• By market: consumer services vs business-to-business services.
• By degree of contact: high contact (hotel, hospital) vs low contact (online banking).
• By labour intensity: people-based (teaching) vs equipment-based (ATM, vending).
• By goods content: pure service (consulting) → service with accompanying goods (restaurant) → goods with accompanying service (car with warranty).

• People: front-line employees are the service in the customer's eyes; other customers also shape the experience (a noisy table in a restaurant).
• Physical evidence: the environment and tangibles that signal quality — a hospital's cleanliness, a bank's interiors, a website's design.
• Process: the actual procedures and flow — standardised (McDonald's) or customised (wealth management); online check-in in airlines.

• Expectations are beliefs about service delivery that serve as standards against which performance is judged.

• Influences on desired service: personal needs, lasting service intensifiers, explicit and implicit promises, word of mouth, past experience.
• Influences on adequate service: transitory intensifiers (emergencies), perceived alternatives, self-perceived role, situational factors.
• Zone of tolerance is narrower for reliability (the core) than for tangibles, and narrower for outcome than for process.

• Perceptions are how customers actually judge the service — at the level of each service encounter ("moment of truth").

• Types of encounters: remote (ATM, app), phone, face-to-face; each one can make or break the relationship.

SERVQUAL (Parasuraman, Zeithaml and Berry, 1988) measures service quality as the gap between customer expectations and perceptions across five dimensions.

Service quality score = Perception − Expectation. A negative score means the service falls short.

The integrated gaps model

• Gap 1 (knowledge): poor market research, little upward communication, no relationship focus.
• Gap 2 (standards): no customer-defined standards, poor service design, inadequate physical evidence.
• Gap 3 (delivery): weak HR policies, role conflict, customers not playing their role, intermediary problems.
• Gap 4 (communication): over-promising in advertising, poor internal communication.
• Gap 5 (customer gap) is the result of gaps 1–4; closing the provider gaps closes the customer gap.