IMT-70: MARKETING OF SERVICE INDUSTRIES

PART- A

Q1: 'It is important to understand and meet customer expectations.' Do you agree? Give reasons for your answer.

Q2: Why is price considered to be a key marketing tool in services?

Q3: What do understand by the term 'service encounter'? Discuss some key customer encounter scenarios.

Q4: Do you think launching a new product requires a systematic process of development? Support your answer with relevant examples.

Q5. How does the hold objective help in defending a company's current position against imminent competition?

PART- B

Q1: 'The output of a service organization is determined by the productive capacity of its equipment and its personnel' Comment.

Q2: What are the factors that influence pricing decisions?

Q3: What is the role of a message in moving an individual from the stage of awareness to eventual purchase?

Q4: Explain how personal communication as a two-way communication.

Q5: Why do customers often rely on tangible evidence surrounding a service for their evaluation?

PART- C

Q1: Write a detailed note on your understanding of human resource management (HRM).

Q2: As an HR employee, how will you manage employment relationship?

Q3: Do you think regular customer surveys help in measuring the level of customer satisfaction? Give reasons for your answer.

Q4: Do you agree with the statement, 'Firms need to ascertain the relationship between loyalty and profitability of customers before deciding which type of loyal customers are truly profitable for companies'? Give your arguments based on the statement.

Q5: In today's world, why is it crucial to develop a relationship with customers?

CASE STUDY - 1

The Eastern Bank was a large commercial bank with headquarters in Calcutta and branches throughout the country. The regional offices, each headed by a Chief Manager, were located in Calcutta, Patna, New Delhi, Bombay and Madras. Major policy matters were handled by the head office. At the same time, much authority on loans and other matters was delegated to the regional offices. The bank's early expansion had come about through internal growth and mergers. The bank's growth was satisfactory until the late 1950s but it really bloomed between 1960 and 1980. During that period, the number of branches tripled and net profits, assets and foreign currency holdings more than doubled.

Then, during the 1990s, the bank experienced increasing competition from several sources. Other commercial banks and private associations were becoming more sophisticated and more aggressive in their marketing. Securities brokers such as the Mantas, Dalals and HP Portfolio were expanding their financial services and were advertising heavily. Even companies such as ITC, the Tatas and the Birlas were entering the field of financial services.

These winds of change that were blowing through the banking business made the Eastern Bank management realize that it had to do something if it wanted to maintain the bank's market share and growth pattern. About two years ago, a few of its top executives had come in contact with some marketing professors at a management development programme. The executives were impressed by what they heard about the marketing concept. They thought that by applying the marketing concept to the Bank they could adapt better to their changing environment. Consequently, they decided to introduce the marketing concept on an experimental basis in a few of the branches in the Calcutta area.

Its main target markets were big businesses and large accounts. Not much attention was given to attracting small depositors. The bank needed to change its attitude, approach and distorted image if it wanted to tap into this potential market.

The responsibility for these changes was to be placed on a marketing department, where the executives correctly understood the professors' explanation of the marketing concept. The only previous activity conducted by the Bank in the field of marketing had been in the area of public relations and advertising. In the late 1960s, the bank had established a separate public relations and advertising department, headed by a manager who reported to a bank officer of the corporate secretary. This department supplied ink blotters and book covers for students, posters for display at branches, advertising cards for use on public transportation, small information folders, for branch disposal and many similar items. The common characteristic of each of these items was a message from the Eastern Bank - for instance, a message with descriptive pictures telling of the advantages of a savings account or a safety deposit box.

This type of promotion may have been adequate in the beginning, but the Bank soon found that it must do a lot more. This led to more intensive promotional activities such as the establishment of student tours, sponsorship of prizes at regional fairs, student scholarships and display booths at industrial fairs. Because banking had become more complex and competitive, the bank was outgrowing its public relations and advertising department.

Mr Chandan Mitra, who came to the Eastern Bank from the marketing department of a leading consumer goods manufacturing firm in 1989, was named to head the new marketing department. He was given the title of Assistant General Manager (Marketing) and he reported directly to Mr Alok Jain, the General Manager. Mr Jain gave Mr Mitra complete charge of the marketing department and full rein to implement any new marketing feature.

As his first objective, the new department head planned a major reorganization designed to (1) upgrade and modernize all services, (2) handle customer services more efficiently, and (3) listen to and act upon customers' suggestions and complains.

The public relations and advertising department was placed under the new marketing department. One of the first projects of the marketing department was to redesign the banking forms, using the new bank logo and colours. The uniforms of messengers and mail service staff were redesigned to reflect the bank's new image. Banking hours were to be extended for customer convenience. Mr Mitra suggested that marketing departments be established in each of the five regional offices.

After nine months, the marketing department's staff numbered twenty-nine people. Most of the proposed projects had been initiated. The public relations and advertising department was virtually absorbed by the marketing department. Research and planning were under way to establish marketing departments in the five regions.

About this time, however, problems began to arise and conflicts developed. Doubts were raised about the number and frequency of changes. Many of the changes did not transpire as well as the Bank had expected. Mr Mitra, who was inexperienced in banking matters, had plunged into his job of introducing a marketing orientation into the Bank. But he received little or no cooperation or assistance from the older staff members, that is, the experienced bank personnel. He relied entirely on his previous marketing knowledge and experience. But some of his ideas were considered unorthodox by the banking public as well as by many of the staff, including his subordinates and superiors. Mr Mitra secretly admitted that he did not care what the staff thought of the new concept; that if it was a good thing it would be implemented.

In the meantime, Mr Mitra clashed with a senior manager and in the weeks that followed, Mr Mitra was unable to patch up this relationship. This situation eventually led to Mr Mitra's movement from the Bank. The marketing department was dissolved as an organizational unit. A new public relations and advertising department was set up to perform the marketing activities and Mr K Majumdar was installed as manager of this new department.

Questions:

Q1. Do you think that the marketing concept failed at the Eastern Bank?

Q2. Should the introduction of the marketing concept in a service industry be different from that in product manufacturing?

Q3. What approach should Mr Majumdar adopt in his position? Evaluate his chances if he wants to revive the marketing concept and make it a success.

CASE STUDY - 2

In terms of sheer size and reach, public sector banks still dominate India's banking system. There are thirty three private banks and forty-three foreign banks operating in the country now, but the twenty-seven public sector banks still mop up the bulk of the banking business, accounting for close to eighty-three per cent of the total deposits and eighty per cent of the total advances.

The State Bank of India (excluding seven other banks belonging to the group) alone has a deposit base in excess of Rs 169,000 crore, of which over 60 per cent is in the form of term deposits. It has nearly 9000 branches all over the country, miles ahead of any other competitor. However, in various parameters like operational efficiencies, productivity, earnings, asset quality and customers' perceptions of service quality, SBI is far behind some of the foreign and private banks operating in the country.

The banking industry as a whole is passing through a very critical time. The spread between the lending rate and the deposit rate constitutes the largest component of a Bank's revenue stream and that component has been contracting for the last few years. Two factors have contributed to this decline: decreasing interest rates, and increasing competition. The Reserve Bank of India (RBI) is continuously slashing bank rates. Consequently, the prime lending rate charged by the banks is also declining leading to an immediate reduction in interest income streams for the banks. But since the lower rates apply only to fresh deposits, the reduction in deposit rates ripples through the cost structure with a lag.

Irrespective of what happens to interest rates, however, competition will continue to compress spreads. On the lending side, top-grade corporates can directly access both domestic and global markets for funds, cutting out the banks altogether. With virtually all the banks chasing the same set of elite corporate borrowers, margins are sinking fast. On the deposits side too, customers are getting increasingly choosy. For starters, more types of bank deposits are available. The monetary policies now grant banks significant freedom to tailor deposits to customer preferences. Increased customization may be necessary to retain market share, but it is also translating into a higher effective cost of deposits for the banks.

More importantly, the number of alternative savings vehicles is multiplying. There are, of course, the national savings instruments, like the post office deposits and the public provident fund, which offer the investor attractive tax-free returns.

For quicker returns, many of the banks are going retail. The margins in retail lending are higher than those in corporate banking. Lured by those high margins, the banks are going retail in droves, aggressively moving into the lending space that was once occupied by the non-banking financial companies. Most top banks now offer their retail customers a variety of loan products: auto loans, home loans, salary loans, loans against shares and other financial instruments, personal loans, and credit- and debit-card facilities. The loan products have been designed to suit the various needs and payment capacities of the potential customers. The eligibility conditions have been greatly simplified. Most of the top banks will send over their representatives to the customers to complete all the application formalities.

There is a blitz of activity on the deposit side as well. The public-sector banks are going upmarket; foreign banks are going down-market. So, while banks like SBI and Corporation Bank open up boutique branches to cater to high net worth individuals, foreign banks like Citibank are expanding their reach by offering various attractive savings schemes.

There are, of course, considerable risks in retail. Databases on credit history are inadequate; collection mechanisms are poor; investments in technology are large; and operating efficiency levels need to be high. Unlike corporate banking, retail banking involves a large number of small accounts, so the demands on processing capabilities are much greater.

Thinning spreads can no longer sustain a bloated cost structure. Thirty years of nationalized banking have created a far-flung, but flabby system. Unsurprisingly, the productivity ratios of the public-sector banks have remained abysmal.

Technology is now able to deliver the advantages of reach without the attendant paraphernalia and costs associated with a lumbering branch network. As Automated Teller Machines (ATMs), tele-banking, and, more recently, Net-banking practices proliferate, a bank will need fewer branches to achieve critical mass.

To effectively compete with such low-cost delivery channels, the public-sector banks need to shut down loss making branches. While the banks can open and relocate branches in urban and metropolitan centres, branch closures require prior RBI permission. In semi-urban and rural areas, the banks cannot close branches if there is no alternative in the area. Such restrictions curb operational flexibility, and force the banks to continuously subsidize their weaker branches.

Rationalization of the labour-force presents an even more daunting challenge. Since retrenchment is not an option, the numbers can only be pared down through natural attrition and Voluntary Retirement Schemes (VRSs). For the public sector banks, the historical correction is going to take more time, effort and money. For starters, they have to contend with a highly unionized workforce that is deeply suspicious of any form of restructuring activity. Worse, few public sector banks have the resources to finance the up-front charge of large VRS initiatives. Also, a fiscally strained government will be hard put to fund the shortfall.

Questions:

Q1: What are the important service quality dimensions in the case of retail banking?

Q2: How should a public-sector bank like SBI, effectively compete with the new private-sector and foreign banks in the present highly competitive retail market?