MODULE 4 SERVICE DEMAND MANAGEMENT

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Syllabus demand situations-demand patterns ,demand variation ,demand forecasting methods-

demand management-capacity management ,developing service products :planning and creating

service products-flower of service ,branding service products and experiences-new service
development-steps in development of a new service. The service product mix-service
differentiation ,service life cycle management.

Demand is not a controllable factor; under every situation in different industries, varying demand
situations might be encountered. Through demand management it is possible to manipulate the
demand in your favor. Most organizations in the beginning face varying demand situations which
may not even be favorable to them.

Different types of demand situations

Negative demand: If the market response to a product is negative, it shows that people are not
aware of the features of the service and the benefits offered. Under such circumstances, the
marketing unit of a service firm has to understand the psyche of the potential buyers and find out
the prime reason for the rejection of the service. For example: if passengers refuse a bus
conductor's call to board the bus. The service firm has to come up with an appropriate strategy to
remove the misunderstandings of the potential buyers. A strategy needs to be designed to
transform the negative demand into a positive demand.

No demand: If people are unaware, have insufficient information about a service or due to the
consumer's indifference this type of a demand situation could occur. The marketing unit of the
firm should focus on promotional campaigns and communicating reasons for potential customers
to use the firm's services. Service differentiation is one of the popular strategies used to compete
in a no demand situation in the market.

Latent demand:At any given time it is impossible to have a set of services that offer total
satisfaction to all the needs and wants of society. In the market there exists a gap between
desirables and the availables. There is always a search on for better and newer offers to fill the
gap between desirability and availability. Latent demand is a phenomenon of any economy at
any given time, it should be looked upon as a business opportunity by service firms and they
should orient themselves to identify and exploit such opportunities at the right time. For example
a passenger traveling in an ordinary bus dreams of traveling in a luxury bus. Therefore, latent
demand is nothing but the gap between desirability and availability.

Seasonal demand:Some services do not have an all year round demand, they might be required
only at a certain period of time. Seasons all over the world are very diverse. Seasonal demands
create many problems to service organizations, such as:- idling the capacity, fixed cost and
excess expenditure on marketing and promotions. Strategies used by firms to overcome this
hurdle are like - to nurture the service consumption habit of customers so as to make the demand
unseasonal, or other than that firms recognize markets elsewhere in the world during the off-
season period. Hence, this presents and opportunity to target different markets with the
appropriate season in different parts of the world. For example the need for Christmas cards
comes around once a year. Or the, seasonal fruits in a country.

Demand patterns need to be studied in different segments of the market. Service organizations
need to constantly study changing demands related to their service offerings over various time
periods. They have to develop a system to chart these demand fluctuations, which helps them in
predicting the demand cycles. Demands do fluctuate randomly, therefore, they should be
followed on a daily, weekly or a monthly basis.

Demand forecasting methods

By their nature, judgment-based forecasts use subjective and qualitative data to forecast future
outcomes. They inherently rely on expert opinion, experience, judgment, intuition, conjecture,
and other “soft” data. Such techniques are often used when historical data are not available, as is
the case with the introduction of a new product or service, and in forecasting the impact of
fundamental changes such as new technologies, environmental changes, cultural changes, legal
changes, and so forth. Some of the more common procedures include the following.
1. Simple Survey Methods

For forecasting the demand for existing product, such survey methods are often employed. In this
set of methods, we may undertake the following exercise.

Consumers Survey – Complete Enumeration Method: Under this, the forecaster undertakes a
complete survey of all consumers whose demand he intends to forecast, Once this information is
collected, the sales forecasts are obtained by simply adding the probable demands of all
consumers. The principle merit of this method is that the forecaster does not introduce any bias
or value judgment of his own. He simply records the data and aggregates. But it is a very tedious
and cumbersome process; it is not feasible where a large number of consumers are involved.
Moreover if the data are wrongly recorded, this method will be totally useless.

Consumer Survey – Sample Survey Method: Under this method, the forecaster selects a few
consuming units out of the relevant population and then collects data on their probable demands
for the product during the forecast period. The total demand of sample units is finally blown up
to generate the total demand forecast. Compared to the former survey, this method is less tedious
and less costly, and subject to less data error; but the choice of sample is very critical. If the
sample is properly chosen, then it will yield dependable results; otherwise there may be sampling
error. The sampling error can decrease with every increase in sample size

End-user Method of Consumers Survey: Under this method, the sales of a product are projected
through a survey of its end-users. A product is used for final consumption or as an intermediate
product in the production of other goods in the domestic market, or it may be exported as well as
imported. The demands for final consumption and exports net of imports are estimated through
some other forecasting method, and its demand for intermediate use is estimated through a
survey of its user industries.

2. Consensus Methods

As an alternative to the “bottom-up” survey approaches, consensus methods use a small group of
individuals to develop general forecasts.

Experts Opinion Poll: In this method, the experts on the particular product whose demand is
under study are requested to give their ‘opinion’ or ‘feel’ about the product. These experts,
dealing in the same or similar product, are able to predict the likely sales of a given product in
future periods under different conditions based on their experience. If the number of such experts
is large and their experience-based reactions are different, then an average-simple or weighted –
is found to lead to unique forecasts. Sometimes this method is also called the ‘hunch method’ but
it replaces analysis by opinions and it can thus turn out to be highly subjective in nature.

Reasoned Opinion – Delphi Technique: This is a variant of the opinion poll method. Here is an
attempt to arrive at a consensus in an uncertain area by questioning a group of experts repeatedly
until the responses appear to converge along a single line. The participants are supplied with
responses to previous questions (including seasonings from others in the group by a coordinator
or a leader or operator of some sort). Such feedback may result in an expert revising his earlier
opinion. This may lead to a narrowing down of the divergent views (of the experts) expressed
earlier. The Delphi Techniques, followed by the Greeks earlier, thus generates “reasoned
opinion” in place of “unstructured opinion”; but this is still a poor proxy for market behavior of
economic variables.

Judgmental techniques of demand forecasting are important in that they are often used to
determine an enterprise’s strategy. They are also used in more mundane decisions, such as
determining the quality of a potential vendor by asking for references, and there are many other
reasonable applications. It is true that judgment based techniques are an inadequate basis for a
demand forecasting system, but this should not be construed to mean that judgment has no role
to play in logistics forecasting or that salespeople have no knowledge to bring to the problem. In
fact, it is often the case that sales and marketing people have valuable information about sales
promotions, new products, competitor activity, and so forth, which should be incorporated into
the forecast somehow. Many organizations treat such data as additional information that is used
to modify the existing forecast rather than as the baseline data used to create the forecast in the
first place.
Experimental Approaches to Forecasting

In the early stages of new product development it is important to get some estimate of the level
of potential demand for the product. A variety of market research techniques are used to this end.

Customer Surveys are sometimes conducted over the telephone or on street corners, at shopping
malls, and so forth. The new product is displayed or described, and potential customers are asked
whether they would be interested in purchasing the item. While this approach can help to isolate
attractive or unattractive product features, experience has shown that “intent to purchase” as
measured in this way is difficult to translate into a meaningful demand forecast. This falls short
of being a true “demand experiment”.

Consumer Panels are also used in the early phases of product development. Here a small group
of potential customers are brought together in a room where they can use the product and discuss
it among themselves. Panel members are often paid a nominal amount for their participation.
Like surveys, these procedures are more useful for analyzing product attributes than for
estimating demand, and they do not constitute true “demand experiments” because no purchases
take place.

Test Marketing is often employed after new product development but prior to a full-scale
national launch of a new brand or product. The idea is to choose a relatively small, reasonably
isolated, yet somehow demographically “typical” market area. The total marketing plan for the
item, including advertising, promotions, and distribution tactics, is “rolled out” and implemented
in the test market, and measurements of product awareness, market penetration, and market share
are made. While these data are used to estimate potential sales to a larger national market, the
emphasis here is usually on “fine-tuning” the total marketing plan and insuring that no problems
or potential embarrassments have been overlooked. For example, Proctor and Gamble
extensively test-marketed its Pringles potato chip product made with the fat substitute Olestra to
assure that the product would be broadly acceptable to the market.

Scanner Panel Data procedures have recently been developed that permit demand
experimentation on existing brands and products. In these procedures, a large set of household
customers agrees to participate in an ongoing study of their grocery buying habits. Panel
members agree to submit information about the number of individuals in the household, their
ages, household income, and so forth. Whenever they buy groceries at a supermarket
participating in the research, their household identity is captured along with the identity and price
of every item they purchased. This is straightforward due to the use of UPC codes and optical
scanners at checkout. This procedure results in a rich database of observed customer buying
behavior. The analyst is in a position to see each purchase in light of the full set of alternatives to
the chosen brand that were available in the store at the time of purchase, including all other
brands, prices, sizes, discounts, deals, coupon offers, and so on. Statistical models such as
discrete choice models can be used to analyze the relationships in the data. The manufacturer and
merchandiser are now in a position to test a price promotion and estimate its probable effect on
brand loyalty and brand switching behavior among customers in general. This approach can
develop valuable insight into demand behavior at the customer level, but once again it can be
difficult to extend this insight directly into demand forecasts in the logistics system.

Complex Statistical Methods

We shall now move from simple to complex set of methods of demand forecasting. Such
methods are taken usually from statistics. As such, you may be quite familiar with some the
statistical tools and techniques, as a part of quantitative methods for business decisions.

1. Time Series Analysis or Trend Method

Under this method, the time series data on the under forecast are used to fit a trend line or curve
either graphically or through statistical method of Least Squares. The trend line is worked out by
fitting a trend equation to time series data with the aid of an estimation method. The trend
equation could take either a linear or any kind of non-linear form. The trend method outlined
above often yields a dependable forecast. The advantage in this method is that it does not require
the formal knowledge of economic theory and the market, it only needs the time series data. The
only limitation in this method is that it assumes that the past is repeated in future. Also, it is an
appropriate method for long-run forecasts, but inappropriate for short-run forecasts. Sometimes
the time series analysis may not reveal a significant trend of any kind. In that case, the moving
average method or exponentially weighted moving average method is used to smoothen the
series.
2. Barometric Techniques or Lead-Lag Indicators Method

This consists in discovering a set of series of some variables which exhibit a close association in
their movement over a period or time.

For example, it shows the movement of agricultural income (AY series) and the sale of tractors
(ST series). The movement of AY is similar to that of ST, but the movement in ST takes place
after a year’s time lag compared to the movement in AY. Thus if one knows the direction of the
movement in agriculture income (AY), one can predict the direction of movement of tractors’
sale (ST) for the next year. Thus agricultural income (AY) may be used as a barometer (a leading
indicator) to help the short-term forecast for the sale of tractors.

Generally, this barometric method has been used in some of the developed countries for
predicting business cycles situation. For this purpose, some countries construct what are known
as ‘diffusion indices’ by combining the movement of a number of leading series in the economy
so that turning points in business activity could be discovered well in advance. Some of the
limitations of this method may be noted however. The leading indicator method does not tell you
anything about the magnitude of the change that can be expected in the lagging series, but only
the direction of change. Also, the lead period itself may change overtime. Through our
estimation we may find out the best-fitted lag period on the past data, but the same may not be
true for the future. Finally, it may not be always possible to find out the leading, lagging or
coincident indicators of the variable for which a demand forecast is being attempted.

3. Correlation and Regression

These involve the use of econometric methods to determine the nature and degree of association
between/among a set of variables. Econometrics, you may recall, is the use of economic theory,
statistical analysis and mathematical functions to determine the relationship between a dependent
variable (say, sales) and one or more independent variables (like price, income, advertisement
etc.). The relationship may be expressed in the form of a demand function, as we have seen
earlier. Such relationships, based on past data can be used for forecasting. The analysis can be
carried with varying degrees of complexity. Here we shall not get into the methods of finding out
‘correlation coefficient’ or ‘regression equation’; you must have covered those statistical
techniques as a part of quantitative methods. Similarly, we shall not go into the question of
economic theory. We shall concentrate simply on the use of these econometric techniques in
forecasting.

We are on the realm of multiple regression and multiple correlation. The form of the equation
may be:

DX = a + b1 A + b2PX + b3Py

You know that the regression coefficients b1, b2, b3 and b4 are the components of relevant
elasticity of demand. For example, b1 is a component of price elasticity of demand. The reflect
the direction as well as proportion of change in demand for x as a result of a change in any of its
explanatory variables. For example, b2< 0 suggest that DX and PX are inversely related; b4 > 0
suggest that x and y are substitutes; b3 > 0 suggest that x is a normal commodity with
commodity with positive income-effect.

Given the estimated value of and bi, you may forecast the expected sales (DX), if you know the
future values of explanatory variables like own price (PX), related price (Py), income (B) and
advertisement (A). Lastly, you may also recall that the statistics R2 (Co-efficient of
determination) gives the measure of goodness of fit. The closer it is to unity, the better is the fit,
and that way you get a more reliable forecast.

The principle advantage of this method is that it is prescriptive as well descriptive. That is,
besides generating demand forecast, it explains why the demand is what it is. In other words, this
technique has got both explanatory and predictive value. The regression method is neither
mechanistic like the trend method nor subjective like the opinion poll method. In this method of
forecasting, you may use not only time-series data but also cross section data. The only
precaution you need to take is that data analysis should be based on the logic of economic theory.

4. Simultaneous Equations Method

Here is a very sophisticated method of forecasting. It is also known as the ‘complete system
approach’ or ‘econometric model building’. In your earlier units, we have made reference to such
econometric models. Presently we do not intend to get into the details of this method because it
is a subject by itself. Moreover, this method is normally used in macro-level forecasting for the
economy as a whole; in this course, our focus is limited to micro elements only. Of course, you,
as corporate managers, should know the basic elements in such an approach.

The method is indeed very complicated. However, in the days of computer, when package
programmes are available, this method can be used easily to derive meaningful forecasts. The
principle advantage in this method is that the forecaster needs to estimate the future values of
only the exogenous variables unlike the regression method where he has to predict the future
values of all, endogenous and exogenous variables affecting the variable under forecast. The
values of exogenous variables are easier to predict than those of the endogenous variables.
However, such econometric models have limitations, similar to that of regression method.

Capacity management

The other set of strategic options are related to managing capacity and controlling the supply side
by selecting out of the following strategic options: using part-time employees, increasing
efficiency of existing personnel involving customers, sharing capacity with others, and investing
in expansion options. Employing part-time employees (moonlighters) is one of the solutions to
increase capacity. At a resort hotel, local students can be engaged during peak seasons to cater to
the customers. The most appropriate example is management institutions, which run their regular
courses with part-time/guest faculty. The other option is to maximize the efficiency of existing
employees by imparting training. By training the staff in multiple functions, most employees can
be engaged in essential tasks of delivering the service during peak hours and the support tasks
are deferred to slack periods. A smaller hotel can successfully use this method where a handful
of people can provide room service, housekeeping and restaurant service. The third method is
that the consumers participate in delivery of service and, thereby, lower the labour requirements
of the producer. Self service groceries floor or restaurants are examples of such a strategy. The
fourth method is that of sharing capacity with others rather than creating capacity inhouse.
Hospitals, for example, participate with pathological labs, X-ray clinics, CATscanning labs, etc.,
rather than investing in expensive equipment themselves. Even restaurants are selling branded
ice creams rather than investing in ice cream making facilities in-house. Lastly, of course, is the
option of increasing capacity by investing in expansions so as to cater to the increase in demand.
This strategy is best suited if the increase in demand is of a permanent nature. 1 Although,
productivity would result in better profitability, service managers should not push it so hard that
quality is affected in some or the other way. It might be that the quality delivered is the same but
the customer has perceived a reduction in quality. Therefore, one has to balance out between
productivity, standardized quality and. customers.

THE FLOWER OF SERVICE

Core and supplementary services are generally referred to as the Flower of Service and can help
firms to improve their service levels and overall client satisfaction. Client service therefore not
only relates to the core services, but also the supplementary services and we find that satisfaction
with both core and supplementary services is important for loyal customers. First-time clients
often tend to focus mostly on core service satisfaction when evaluating service levels, whereas
repeat buyers and more loyal clients focus much more on the supplementary services. The
bottom line is that firms should focus on their clients’ full experience. Let us look at two types of
supplementary services and how they add value to the core service offering:

Supplementary services that facilitate service delivery:

Facilitating supplementary services are the services that are needed for service delivery. They
are:

Information: Information provides the client with peace of mind, as well as guidance and
understanding of pricing, conditions of sales, usage, etc. Without information, clients are very
often left unsure.

Invoicing: Clients want to be clear on what they are paying for, when they have to pay and how
to pay. An invoice needs to be on-time, accurate and clear.

Feedback: Clients want feedback on the progress, status of their transaction, enquiry or problem.
Slow or no feedback often causes the most frustration amongst clients.

Supplementary services that enhancing service delivery:

Enhancing services does exactly that – it enhances the value and appeal of the firm and its
services. Enhancing services include:
Consultation: Clients want customised advice and personal counselling. They “buy” your
knowledge and expertise.

Hospitality: Includes making clients feel welcome, offering refreshments, clean toilets and
comfortable waiting areas.

Empathy: Refers to good communication, customer understanding and easy accessibility –

Empathy reflects your ability and willingness to listen to a client’s needs and relate to their
problem, needs or frustrations.

Courtesy: Refers to consistent friendliness and professionality of staff – whether in person,

telephonically or via email.

Availability: You should be accessible via telephone or email to give feedback, information or
advice.

Tangibles and appearances: Refers to the appearance and physical elements of your business, e.g.
availability of parking, reception or waiting areas, consultation or meeting areas, marketing
material (e.g. business cards, brochures).

Reliability: Refers to dependable and accurate performance, like getting back to clients and
doing what you say you will do. Reliability is a key part of a trust relationship.

Safekeeping: Safekeeping relates to keeping clients’ records safe, private and confidential. If you
are unable to do this, clients will completely loose trust in you and your staff.

A firm can therefore create a significant competitive advantage by focusing on the service
quality of their supporting services and by adding value to the core service. Just make sure you
do it better than the competition.
BRANDING IN SERVICES

To avoid the consequences of a commodity classification, service firms use branding to assure
the consumer they will receive uniform service, the quality of food and service provided at
Burger King tends to be the same across all locations. Consumers know what to expect
regardless of which outlet they patronize. Because consumers know what to expect, in new
situations they will often choose a Burger King or other brand name fastfood facility rather than
choose a local firm with which they have no experience with. For service firms, branding
provides value by enhancing the efficiency and effective ness of the marketing programs. Brand
loyalty and repeat purchase leverage their positions through brand extensions, higher prices, and
higher margins. A highly established brand name can provide a firm with a strong competitive
advantage. Holiday Inn was the first to introduce a brand name to the hotel industry. The brand
name was a major reason for Holiday Inn’s tremendous growth. It allowed the Holiday Inn to
transform a commodity type service into differentiated service. To maximise the benefit of a
brand, service providers should meet the following g characteristics: • The brand is distinctive. •
The brand is relevant • The brand has a tangible quality. The company’s most important services
are branded and linked. In branding, a company must decide if it wants to use a single brand or
multiple brands. The primary reason for using a single brand name is to capitalize on strong
brand name that will demonstrate consumer preference. As the low end of the hotel segment are
single brand firms such as Motel 6, Red Roof, etc. at the high end are single brand firms such as
Hilton, Hyatt, etc. In the middle segment are firms such as Quality Inn, Holiday Inn, etc. As
services are not physical objects, they cannot be touched, seen or smelt. Physical goods can be
touched, seen, tasted, smelt or heard before they are bought. We can market services by
emphasising 86 the benefits and the satisfaction offered. Service itself cannot be a primary object
of promotion. Credit cards per se are useless pieces of plastic. However, the power to buy a
variety of things at 90,000 different establishments with this piece of plastic makes it a useful
product. Services carry with them an array of perceptions. It is an abstract concept. However,
there are always some tangible elements, which enable us to evaluate services, e.g., in a flight,
the tangible elements are the experience at the airport, on-board services and the in-flight
entertainment. But these are not comparable to a TV set or a suit where the total product is seen.
As services are abstract, they are given reality through tangible elements, e.g., a law firm is
evaluated on the basis of its turnover, size, track record, and location. All these elements create a
brand image. Further, these are intangible elements are associated with service brands; these
brands tend to be commoditized. Service brands are made tangible so as to make their perception
consistent and common amongst consumers. The tangibility is imparted by using as many
physical elements as possible which could be associated with the brand, e.g., staff uniforms,
ambience, interior decor, music when customers are on hold, use of colours, stationery,
brochures, pack-ages, design of physical facilities. These elements must be consistent with the
service. There should be a holistic approach; Physical evidence must go well with the brand,
convey a consistent message, and appeal to the target audience. We should seek the additional
opportunities to provide physical evidence for the service. Service Brands and Manpower
Services are represented by the manpower. In so many cases, they are the only point of contact
for the consumer. If the staff is properly trained arid well behaved, the chances of the service
brand being successful are greater. Service quality is influenced by the following factors related
to the manpower:
• Appearance: Elegantly dressed staff is a must for the service brand. Shabbily dressed staff
cannot sell high profile services.

• Responsiveness: Manpower should be sensitive of the needs of the consumers. In a cinema

hall, a family can be given corner seats.

• Assurance: If there are snags, the manpower courteously informs the consumers and also
informs them about the steps being taken to rectify the problem.

• Empathy: A crying child is given a chocobar in a restaurant. Manpower tries to comfort the
child, and of course, the family and fellow customers too.

• Reliability: Track record is built by providing reliable service. Manpower who is satisfied on
the job leads to consumer satisfaction. ‘Staff motivation is an. area which requires utmost
managerial attention. Right from manpower planning to selection to supporting and retention of
manpower, the personnel aspects do go a long way in developing the right service brand.
Customer service should become the second nature for all employees. Such an organisation
culture cannot be created overnight, but it is worth the effort to accept the challenge. Service
Brands and Consumer Participation Consumer participation greatly influences the perception of
a service brand. A particular swimming pool may be very good, but a person whose experience
with the swimming coach is not good, may complain about the quality of the swimming pool
itself. There are different degrees of consumer participation. There is low participation in
restaurants and air flights. Here the consumer’s presence is necessary, and the service personnel
render the whole service. Even courier services have low consumer involvement. Consumers
rarely see their infrastructure. They interact telephonically with the courier company for a short
while. We can provide standardized offerings of such services. The procedures are well defined.
In the financial sector, the participation is limited, say in a bank branch, consumer is expected to
fill in a pay in slip while depositing cash, and tender the cash across the counter, and get back
duly stamped acknowledgement. But the bank staff does the major portion of work. But in a
health club or business management school there is higher level of consumer participation. 88
They take active part in a weight reduction programme. They hold themselves responsible if the
results are not satisfactory. They are very happy when the service provider tries to solve the
problem. Because of high degree of participation, organisations design customized offerings for
the consumers. Consumer participation is also an educative process. A consumer must master
telephone banking or mobile banking before getting its benefits. Even Internet banking is a
participative process requiring effort on the part of the consumer. But consumers gain benefits on
account of such participation, e.g., utility bills can be paid through Internet from anywhere.

NEW SERVICE DEVELOPMENT (NSD)

.Idea Generation:

Ideas may be generated in many ways. They can arise inside the organization and outside it,
they can result from search procedures (e.g. marketing research) as well as informally; they may
involve the organization in creating the means of delivering the new service product or they may
involve the organization in obtaining rights to services product, like franchise.

2. Idea Screening

This stage is concerned with checking out which ideas will justify the time, expense and
managerial commitment of further research and study. Two features usually associated with the
screening phase are: i. The establishment or use of previously agreed evaluative criteria to enable
the comparison of ideas generated (e.g. ideas compatible with the organization’s objectives and
resources); ii. The weighing, ranking and rating of the ideas against the criteria used.

3. Concept Development

Testing Ideas serving the screening process then have to be translated into product concepts. In
the service product context this means concept development and concept testing. (a) Concept
Development .This phase is concerned with translating the service product idea, where the
possible service product is defined in functional and objective terms, into a ser vice product
concept, the specific subjective consumer meaning the organization tries to build into the product
idea. (b) Concept Testing Concept testing is applicable in services contexts as well as in goods’
contexts. Concept testing consists of taking the concepts developed after the stages of idea
generation and idea screening and getting reactions to them from groups of target customers.

4. Business Analysis
This stage is concerned with translating the proposed idea into a firm business proposal. It
involves undertaking a detailed analysis of the attractiveness of the idea in business terms and its
likely chances of success or failure. A substantial analysis will consider in detail aspects like the
manpower required to implement the new service product idea, the additional physical resources
required, the likely estimates of sales, costs and profits over time, the contribution of the mew
service to the range on offer, likely customers reaction to the innovation and the likely response
of competitors.

5. Development

This stage requires the translation of the idea into an actual service product for the market.
Typically this means that there will be an increase in investment in the project. Staff may have to
be recruited or trained, facilities may have to be constructed, and communications systems may
need to be established. The tangible elements of the service product will be designed and tested.
Unlike goods the development stage of new service product development involves attention to
both the tangible elements of the service product delivery system.

6. Testing

Testing of new service products may not always be possible. Airlines may introduce a new class
of service on a selected number of routes or a bank may make a new service available initially on
a regional basis like automated cash dispensers. But some new service products do not have such
an opportunity. They must be available and operate to designed levels of quality and
performance from their introduction.

7. Commercialization

This stage represents or organization’s commitment to a full-scale launch of the new service
product. The scale of operation may be relatively modest like adding an additional service to an
airline’s routes or large scale involving the national launch of fast service footwear repair outlets
operating on a concession basis. In undertaking the launch, the four points may apply: (a) When
to introduce the new service product; (b) Where to launch the new service product, whether
locally, regionally nationally or internationally; (c) To whom to launch the new service product
usually determined by earlier exploration in the new service product development process; (d)
How to launch the new service product. Unit trusts for example may offer a fixed price unit on
initial investments for a certain time period.

SERVICE DIFFERENTIATION

The important thing, which needs to be understood, is the level of service package. One has to
understand the primary service package and the secondary package in relation to a specific
service and then create differentiation. If we take the example of recent changes, which have
come about in the Indian aviation industry, the strategies package for civil aviation industry
includes punctuality. If these Airlines have achieved 97 percent on time departures, they are able
to differentiate themselves from the public sector airlines. The other strategies towards
differentiation include free on board liquor, non-Indian cabin crew, quality of food, etc. From
this example we observe that most innovations in service industries are capable of being copied.
Although this is a reality in service industries, a marketer still keeps introducing newer
innovations to sustain the competitive edge. For example, Citibank in India (more specifically,
Delhi) was not permitted to open branches beyond a limited number affecting “retailing of their
services”. They made innovative arrangements with other parties for increased distribution of
their loan services to purchase house, scooter, car, durables and other household appliances. This
arrangement gave Citibank a competitive edge. Gaining a competitive edge by product
differentiation, product positioning, market segmentation, new product planning, innovations,
product quality, etc. has become the foundation of marketing strategy with the purpose being to
win a long-term commitment from key customers. The consumer orientation of business strategy
has become far more important because of growing competition, and, as a result, knowing your
business, your markets, your customers and your products with specific reference to you
competitors has become the new strategic tool. According to Michael Porter, it is difficult to
understand competitive advantage by looking at a firm as a whole. Instead, each of the activity,
which a firm performs to design, produce, market, deliver and support its product, should be
examined and the interaction of each with the rest should be analyzed to identify the sources of
competitive advantage. But is it that one always has to develop competitive policies, and do such
policies always pay? The competitive forces had a direct impact on a firm’s profitability and,
therefore, marketing or business strategy should take competition into cognizance. The
differentiation is a major issue in service industries as most service innovations can be easily
copied. Service companies, therefore, face the challenge of continuously developing new
innovations to gain a succession of temporary advantages over their competitors. The firms
invariably view the potential sources of differentiation too narrowly. A firm needs to
differentiate its offer from that of competitors by providing something unique that is valuable to
the buyer. If this is successfully achieved the firm can command a premium price, sell more of
its product in the long run and win greater loyalty. Further, the products are differentiated by the
company’s image and reputation, the salespersons with whom the customer interacts and a
bundle of other intangible attributes. Differentiation stems from each of the specific activities a
firm per-forms and how they affect the buyer. Therefore differentiation, in fact, grows out of the
firm’s value chain. Though the concept of value chain was devised keeping the manufacturing
companies in focus, however, this concept applies equally well to the service industry. The value
chain desegregates a firm into strategically relevant activities with corresponding cost
implications. A firm can gain competitive advantage by performing these strategically important
activities mare economically or better than its competitors to gain an advantage over them. Value
chain activities are broadly categorized under two heads. First are the primary activities like
inbound logistics, operations, outbound logistics, marketing, sales arid servicing. The second are
the support activities, which include infrastructure, human resource management, technology
development and procurement. In fact, the support activities are integrating functions that cut
across the various primary activities, which can be further subdivided into specific and discrete
primary activities, which contribute to the value chain. Generally, it can be observed that value
activities are discrete building blocks of competitive advantage. How each value activity is
performed with its economics of cost in relation to the competitors would determine its
contribution to the buyers needs and, thereby, create a differentiation and a discrete competitive
advantage. Similar to the firm, buyers also have value chains. It is difficult to construct a value
chain that covers everything an individual buyer or a household and its occupants do. But it is
possible to construct a chain for activities that are relevant to how a particular product is used. A
chain need not be constructed for every household but chains for representative households or
individuals can provide an important.
STEPS IN DIFFERENTIATION

Porter recommended an eight-step approach to determine the bases of differentiation and

selecting a differentiation strategy. More specifically, the differentiation exercise would follow
the following steps: The first step is to determine who the real buyer is. In other words, within
the overall buying cycle who would interpret your offer and decide. It is possible that apart from
the end user, channel members may also be the buyers. The second step in this process is that the
firm must identify the direct and indirect impact on its buyer’s value chain to determine the value
the firm should create for its buyers. A firm must explore all possible options to influence the
buyer’s value chain in its direction. Such an analysis of buyer’s value chain would provide a
foundation for determining the buyer purchase criteria (BPC). 161 Therefore, logically, the third
step is to rank the buyer purchasing criteria. At times, such an analysis might suggest purchase
criteria that the buyer does not currently perceive. However, the same must be identified in a
manner that it can be operationalised, and their list of buyer purchase criteria on a continuous
basis to sustain competitive advantage. Such an inventory of BPC is then divided into two
categories; use criteria and signaling criteria. The fourth step is that the firm must identify its
existing sources of uniqueness in relation to its competitors and also the potential new sources of
uniqueness, because differentiation stems from the uniqueness of firm’s value chain. Since
differentiation is always relative, a firm’s value chain must also be compared with the value
chain of competitors. Such an exercise should result in the identification of specific factors of
uniqueness, termed as ‘drivers’. The fifth step then is to study the cost implications of all the
indemnified factors, both use criteria and signaling criteria, which can lead to differentiation. The
sixth step is to choose the configurations of value activities that create the most valuable
differentiation for the buyer. The seventh step is to check the sustainability factor of your chosen
differentiation strategy. Sustainability has to be checked against erosion or imitation. Kotler has
observed that in services industry imitation is easy to copy, but some companies have been able
to cross this stage successfully. The last stage is that of cost reduction in activities that do not
affect the chosen forms of differentiation. Such a strategy would not only improve profitability
but also reduce vulnerability to competitors because of price premium. 162 In fact, successful
differentiation strategies communicate multiple forms of differentiation throughout the value
chain. After all, the value created for the buyer must be perceived by the buyer if it is to be
rewarded with a premium which means that the firm must communicate their value to the buyer
through an appropriate marketing communication mix. If these stages are carefully analyzed,
then one can develop such differentiation strategies, which are not only implementable but also
sustainable, and give a competitive advantage to the organisation.

SERVICE LIFECYCLE

To sustain high levels of business performance, organisations need to offer competitive products
and services that customers will value, buy and use. Adapting quickly to changes in the
economic climate and in the market place is of real importance. All services offered should
enable business transformation and growth.Service Management supports this transformation
through the use of the Service Lifecycle, which is split into 5 distinct lifecycle stages:

Service Strategy

Service Design

Service Transition

Service Operation

Continual Service Improvement

Each stage relies on service principles, processes, roles and performance measures, and each
stage is dependent on the other lifecycle stages for inputs and feedback. A constant set of checks
and balances throughout the Service Lifecycle ensures that as business demand changes with
business need, the services can adapt and respond effectively to them.

1.Service Strategy

Service Strategy sits at the core of the Service Lifecycle and focuses on ensuring that our
strategy is defined, maintained and then implemented. There is key guidance for Executive
Managers’ around operating according to the business constraints, corporate governance and
compliance, legislation, and some cultural aspects of organisational transformation. The focus
will enable practical decision making, based on a sound understanding of the offered services,
with the ultimate aim of increasing the economic life of all services.

Service Strategy is about ensuring that organisational units in support of the business are in a
position to handle the costs and risks associated with their service portfolio, and that they are set
up for service improvement.

2.Service Design

At this stage, the focus shifts to converting the strategy into reality, through the use of a
consistent approach to the design and development of new service offerings:

A consistent use of a common architecture

Understanding and translating the business requirements

Introducing the appropriate Support requirements upon implementation of the service

The scope of Service Design is also not limited to new services; it includes any changes and
improvements necessary to increase or maintain value to customers over the lifecycle of services,
such as improved continuity of a service, or improvements necessary to enhance service hours
and service levels. Changes required because of new conformance standards and regulations are
also relevant as are services bought off the shelf from suppliers.

3.Service Transition

As design and development activities are completed, there is a period for Service Transition with
its key purpose to bridge both the gap between projects and operations more effectively, but also
to improve any changes that are going into live service, even if it is transferring the control of
services between customers and service providers. The Service Transition stage brings together
all the assets within a service and ensures these are integrated and tested together. Its focus is on
the quality and control of the delivery of a new or changed service into operations. Giving
sufficient time and quality effort to this stage of the lifecycle will reduce unexpected variations
in delivery of the live services.

4.Service Operation
The operational teams ensure there are robust end-to-end practices which support responsive and
stable services. They provide on-going support unit and they are a strong influencer on how the
business perceives the service it receives. A key part of this is the Service Desk that directly own
and support incident management and request fulfilment for users, including feedback on user
satisfaction. Supporting functions to the Service Desk include business support and
administration teams. Specific to IT, there are Application Management, and Technical support
teams that contribute to the successful resolution of major incidents that affect the business.

5.Continual Service Improvement

Continual Service Improvement works with the other four stages of the service lifecycle to align
the services with the business needs, whilst recognising improvement opportunities and change.

Service life cycle management(SLM)

Service life cycle management (SLM) refers to a strategy that supports service organizations and
helps them recognize their gross income potential. This is done by examining the service
opportunities proactively as a life cycle instead of a solitary event or set of discrete events. This
helps to combine every service-based operation into a solitary, but complex, set of workflows
and associated business processes. SLM is defined by industry analyst firm AMR Research.

As powerful worldwide competition cuts down product sales margins, global vendors are
beginning to understand and appreciate the significance of customer-centric business. This has
led many businesses to search for better ways to distinguish their products and gain long-lasting
customer loyalty, as well as discover new profit sources. This movement triggered the growth of
SLM, which is an initiative tailored to servicing a business's after-market. Service life cycle
management is different from product life cycle management (PLM), which examines the entire
life cycle of a product, rather than the organization as a whole.

Service management software used in SLM lets manufacturers plan their service resources. It
also helps them to efficiently handle responsibilities, partners and costs of offered services.
These solutions also empower staff by making additional actionable data promptly available,
both in the office and in the field.
SLM includes the following vital elements:

Workforce administration

Components planning and forecasting

Enterprise asset management

Reverse logistics

Knowledge administration

Contract management

Returns and repair management