Those who think that competition in consumer goods is going to hot up in India haven’t seen anything yet! The real action in the next 20 years is going to be in services, an area almost unknown in our country. Not surprising, though. In a poor country services are much less in demand than goods. The situation changes as the country begins to prosper.

In India, like in all developed countries, the service sector is already larger than the primary and the secondary sectors and growing at a rate faster than the two. The lag in the growth of the service sector was partly because of the fact that the major service industries have either historically been government monopolies (power, telecom, airlines, railways, insurance etc) or have otherwise been heavily controlled by the government (for example, hotels have been controlled through land laws, passenger road transport through licensing etc). But things are changing, and fast!

Nobody needs a crystal ball to see the coming boom in service industries like retailing, airlines, leisure and holiday services, repair and maintenance services and dozens of others ranging from computer repair to garden maintenance, and from office housekeeping to automatic car washes. With the increase in disposable incomes, more working women and complexities of products, demand for services will skyrocket.

What about ... errr ... management of services?

In a country where the Indian Airlines was the standard for airline services and our very own Posts and Telegraphs had set the standards for telecom service quality, the concept of management. of services is like road traffic management, everybody knows what is wrong but nobody knows where to start or what to do.

Even in the USA and other developed countries of the world, the whole area of services is being seen as virgin territory for research and theory. There is hardly an issue of a major business journal like the Harvard Business Review or the Journal of Marketing that does not have an article on services. We, in India, do not even have a credit course in marketing of services in most of our B-schools. All this will change, and soon! Amen.

Traditionally, service companies have tended to focus on how to attract customers and, to some extent, on how to retain them. Studies and articles on retention strategy have theorised on “how to build a fortress around your customers” or on how to increase the per customer spend. But not much is known about why customers switch.

Susan M Keaveney, assistant professor of Marketing, Graduate School of Business Administration, University of Colorado at Denver, has done a seminal work on this aspect of services marketing. This study is profiled in her article “Customer Switching Behaviour in Service Industries: An Exploratory Study” (Journal of Marketing, Vol 59, April 1995, pages 7 1-82). A pioneering study, by the looks of it!

Keaveney’s study examines “What are the determinants of customers’ decisions to switch service providers.” She examines “What critical events, or series of events cause customers to leave familiar service providers and seek new ones.”

Past studies on customer switching have been either reason specific or industry specific. In this study Keaveney has used a method called the Critical Path Technique.

Instead of formulating hypotheses and testing them, Keaveney’s research team asked hundreds of respondents to relate incidents that had prompted them to switch from one service provider to another in the previous six months. Critical incidents were defined as any event, combination of events between the customer and the service firm that caused the customer to switch. The key criterion was the incident that led to switching.

The study has findings that are likely to be of interest to service firms everywhere in the world, more so in India, for here most service firms have, at best, a rather tenuous handle on marketing. The findings will also assist marketers in service design, service recovery processes and services strategy formulation. In Keaveney’s research critical incidents have been divided into eight categories:

• Core service failures
• Failed service encounters
• Pricing
• Inconvenience
• Response to failed service
• Competition
• Ethical problems
• Involuntary switching
• Other

• Mistakes
• Billing mistakes, and
• Service catastrophes

Other occurrences are single big mistakes: incorrect filing of prescription by a chemist, dentist leaving town before finishing work causing problems to patients, and inability to deliver service.

The second sub-category of billing problems included instances such as billing for services not provided. In India, we are familiar with this all too common occurrence! Unfortunately, we cannot switch phone companies or power companies. Thank God, we can now switch airlines!

The third category of catastrophes include hard core service failures leading to damage being caused to the customer, for example, “a routine surgical procedure almost killed my dog” or “I had to rent a car to go to work.”

Service encounter failures
The second largest category was service encounter failures. These are defined as personal interactions between customers and employees of service firms. These were mentioned by 34 per cent of the respondents and pertain to service employees’ behaviour or attitude:

• Uncaring
• Impolite
• Unresponsive
• Unknowledgeable

The “unknowledgeable” sub- category included such situations, “The car salesman gave me wrong information about the car”, or a dentist not being up-to-date on technology.

These two categories can also be clubbed under the famous phrase “moments of truth” coined by Jan Carlzon, president of Scandinavian Airlines, the man who is credited with having turned around SAS from a loss-making airline into one of the most highly- rated, profitable companies in the business. He came up with the deceptively simple philosophy of marketing: make sure you basically selling what the customer wants to buy. He believed that he could teach most SAS managers and employees to keep tabs on the kind of treatment the customer received at each of the critical stages of his or her dealings with the company, they could create a conscious impression of service quality for the customer to carry away.

Pricing
The pricing category included all critical switching behaviours that involved prices, rates, fees, charges, penalties, price deals, coupons or price promotions Pricing was the third largest switching category which accounted for 30% of all respondents. Pricing sub-categories included high prices, price increases, unfair pricing practices and deceptive pricing practices. The research study found that customers have internal reference prices and switch if the price is seen to be exceeding the internal normative price.

The examples in the Keaveney study include many from services such as telecom and insurance that are yet to be fully privatised in India. However, the data is likely to be most useful for those planning to enter these fields. It will be interesting to see what happens in the insurance sector once privatisation comes in.

For instance, today in case of a car being stolen or having to be totally written off, the insurance company will pay the depreciated value or the market value, whichever is less, irrespective of the value for which the car is insured and on the basis of which the premium is calculated. One wonders whether in the US such a policy would be considered unethical.

Inconvenience
The inconvenience category included all critical incidents in which the customer felt inconvenienced, like the service provider’s location, hours of operation, waiting time to get appointment. More than 20 per cent of the respondents mentioned inconvenience as one of the reasons for switching. Service providers in the developed world are aware of the importance of the convenience factor. A well-known chain of supermarkets in the US guarantees that it will open another check-out counter the moment the waiting line in any check out counter exceeds four or five customers.

Employee response to service failures
About 17 per cent of the respondents who switched did so because of employee response to service failures. The category was sub-categorised into:

• Reluctant responses, for example, a customer received two incorrect dishes in a restaurant but the waiter refused to replace them without charge and the manager reluctantly agreed to replace one free of cost.
• Failure to respond: An example is cited of a customer who felt the hotel rates were too high but the response was that they were running at 90 per cent occupancy! Another example is of a customer who was not asked why they cancelled his credit card.
• Patently negative responses: that is, where the service provider attributes the failure to the customer.

Competition
Attraction by competition ‘counted for 10 percent of critical switching incidents. Examples quoted by customers included the new service provider being more personable, more reliable or of higher quality. There are cases where the customers switched to higher priced services because of quality perceptions.

This is an area that is likely to pose a major challenge to service marketers in India, as it does elsewhere. The concept of differentiation in services is relatively less understood and even less applied than in the goods sector. Service firms will have to start thinking in terms of a core service strategy that will differentiate their offerings from that of competition. Since services are not always technology-intensive and processes cannot be patented or copyrighted, service firms will have to focus on segmentation, tangibilisation and building brand equity to a much greater extent than in the past.

Service firms will even have to come up with service guarantees. In “My employees are my service guarantees” (HBR, July-August 1989 issue) Timothy Firnstahl says that the key to growth and profits in service industries is to “give away more of your products and services.” In the same issue, Davidow and Uttal have written about the importance of focusing in “Service Companies: Focus or Falter”.

Ethical problems
Ethical problems accounted for 7 per cent of the switches. These were cases where the customer felt that the provider was indulging in activities that were illegal, immoral, unsafe, unhealthy or other behaviours that differed from social norms.

Involuntary switching
Involuntary switching pertaining to switches on account of the customer changing location or the service provider moving or closing down.

About half of the switching incidents recorded by Keaveney involved only one category, the remaining were more complex, involving, at least, two factors. The predominance of complex switching incidents involving more than one factor indicates the importance of cross-functional coordination in service firms.

An interesting part of the research is that some factors that are usually thrown up in the qualitative research did not find significant mention: for example, tangibles, crowding, problems with other customers.

Other interesting findings are in post-switching behaviour. Results of the study show that of the customers who switched, 75 per cent had told at least one other person of his dissatisfaction. Approximately half of the switchers found the new service firm through word- of-mouth communication, references or referrals.

For India, the findings of such a research have to be extrapolated in the perspective of our own environment. Many of the findings may be directly relevant, others not and still others gaining relevance only as competition increases and the customers become more knowledgeable to do research in firms, which is very different from the kind of quantitative research that is usually done.

Marketing of services is the next area of opportunity for marketers in India. We can either get ready and do it right the first time, or falter and learn the hard way.

Nripjit Singh (Noni) Chawla

This article originally appeared in Business Standard Strategist 16 April 1996