Services Marketing Issues in Emerging Economies 9811587868, 9789811587863

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Atanu Adhikari   Editor

Services Marketing Issues in Emerging Economies

Services Marketing Issues in Emerging Economies

Atanu Adhikari Editor

Services Marketing Issues in Emerging Economies

Editor Atanu Adhikari IIMK Campus Indian Institute of Management Kozhikode, India

ISBN 978-981-15-8786-3 ISBN 978-981-15-8787-0 (eBook) https://doi.org/10.1007/978-981-15-8787-0 © Springer Nature Singapore Pte Ltd. 2020 This work is subject to copyright. All rights are reserved by the Publisher, whether the whole or part of the material is concerned, specifically the rights of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfilms or in any other physical way, and transmission or information storage and retrieval, electronic adaptation, computer software, or by similar or dissimilar methodology now known or hereafter developed. The use of general descriptive names, registered names, trademarks, service marks, etc. in this publication does not imply, even in the absence of a specific statement, that such names are exempt from the relevant protective laws and regulations and therefore free for general use. The publisher, the authors and the editors are safe to assume that the advice and information in this book are believed to be true and accurate at the date of publication. Neither the publisher nor the authors or the editors give a warranty, expressed or implied, with respect to the material contained herein or for any errors or omissions that may have been made. The publisher remains neutral with regard to jurisdictional claims in published maps and institutional affiliations. This Springer imprint is published by the registered company Springer Nature Singapore Pte Ltd. The registered company address is: 152 Beach Road, #21-01/04 Gateway East, Singapore 189721, Singapore

Dedicated to my teacher, mentor, Ph.D. guide and guru, Dr. A. K. Rao from whom I have learned humility is the cornerstone of an academic.

Preface

During recent years, marketing of services has gained significant attention among practitioners and research scholars. However, the current understanding of marketing of services has been primarily based on how services have been produced, priced, communicated and distributed in developed countries. There is very little coverage of services marketing from the perspective of emerging economies. In this book on services marketing issues in emerging economies, we collect 13 articles from academics and practitioners. These authors propose several new perspectives on services marketing that are unique in emerging economies. These authors define marketing of services, which emphasizes unique characteristics of services marketing, instead of the systemic understanding, which prevail in developed economies like in the USA and Europe. Furthermore, these authors connect the theory from services marketing to emerging market business practices because the majority of services implementations aims toward goals of marketing, which brings to the discussion the notion of how customer/user is always ultimately the creator of value the service provides. Until now, the main venue for academic discussion on marketing of services has mainly been the developed countries. This book finds it relevant both for industry practitioners and for academics to study how marketing of services can be diverse and unique in the body of knowledge of the existing services literature. This is because the goals and the means of marketing of services in emerging countries, although have a significant overlap with that of developed countries; it does provide unique scope to the marketers, especially the multinationals to design their services offerings. The Chap. 1 deals with the servicescape that plays a significant role in service delivery for services that are facility driven. The authors argue that the emerging markets are characterized by cultural diversity, illiteracy, poverty, challenges in infrastructure, less capital investments and many other resource constraints. These different challenges become a major point of difference as against developed economies while considering designs in servicescapes. Drawing from literature in servicescape designs, this chapter discusses the design issues that need to be addressed in servicescapes and e-servicescapes with particular reference to emerging markets and identifies the challenges that could limit the adoption of these designs. vii

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The Chap. 2 focuses on customer management in online two-sided platforms (OTSPs) in emerging markets such as India. OTSPs deal with two groups of customers, those availing platform for selling products or services and those buying these products or services. As the business model of OTSPs is built on network effect, using an existing model of platform business for developed markets, the authors, both theoretically and through a mathematical model, show that in light of the challenges faced by customers in emerging markets, in the long run, it is beneficial for the platform to set welfare-maximizing prices instead of the myopic profit-maximizing prices. In Chap. 3, the author suggests that with the growth of e-commerce retailing, technology penetration, and rising consumption power of the emerging economy, it is becoming essential for firms need to design unique online service-experiences for their customers. In this chapter, the author discusses the construct of online serviceexperience and factors that drive it. The chapter also discusses the factors driving experiences in emerging and developed economies, highlighting the differences in customer preferences across markets. Based on the analysis, recommendations are given to retailers for designing unique service-experiences for online shoppers in emerging markets. In Chap. 4, authors discuss how electronic commerce has opened the world as a market to the local business and vice versa. The authors opine that the lines between local and global businesses are thinning every day as e-commerce has created a paradigm shift in the way business is conducted in emerging economies like Brazil, Russia, India and China. In this chapter, authors discuss several aspects of e-commerce in both developed and emerging economies and suggest the uniqueness of doing business over e-commerce in emerging markets. They also suggest that if implemented properly, e-commerce may provide value to emerging market companies to a great extent. In Chap. 5, authors argue that several push factors, such as growing middle class, tech-savvy young generation, increasing smartphone and internet penetration, have contributed to this exponential growth of e-commerce. At the same time, there are several service issues that may adversely affect purchasing behavior of consumers on online platforms like delivery of items to consumers at the time of his/her choice, return pick-up of items delivered but not acceptable to consumer, ease of payment and credit back in case of return of items, postdelivery warranty commitments, consumer grievance redressal in case of defective products, to name a few. This chapter analyses such consumer issues in e-commerce transactions and highlights the consumer protection regulations adopted in India and broadly compares it with the systems in the developed economies. Authors argue that these issues may not only have microeconomic consequences by affecting sales and profitability of online vendors but also may pose macroeconomic challenges by slowing down the growth of the e-commerce sector in the respective countries, unless otherwise addressed on time. In Chap. 6, authors argue that the advent of several traditional and nontraditional communications has prompted many manufacturers and retailers in emerging economies to redesign their traditional marketing channel structures by engaging in direct-marketing routes. In this chapter, authors demonstrate the impact of direct

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marketing on consumer behavior in emerging markets. The chapter primarily illustrates how direct marketing affects the degree to which customers accept direct communication as a substitute and complement of indirect communication for buying at a traditional store or at an online platform. In this chapter, authors delve into the related theory, develop scholastic argument and bring several propositions related to direct-marketing effects in emerging economies. In Chap. 7, authors argue that electronic servicescape, referred to as e-servicescape, plays a significant role in facilitating the surfing experience through its ambience, search aids, design and different functional aspects within a particular online platform. The chapter attempts to explain the concept of e-servicescape touching upon essential elements and dimensions of e-servicescape through the review of past literature and contemporary practices. The chapter presents a holistic e-servicescape model in an attempt to aid researchers and marketers doing business in the online platforms to strategize their move considering the innovations and amendments essential for delivering the best service experience to its key stakeholders. Further, the relevance of the eservicescape model in the context of emerging market is discussed to equip marketers with critical insights that would help in developing market-specific service delivery strategies. In Chap. 8, authors delve into corporate strategy issues. They opine that international diversification and its effect on the firm remain a key theme in business literature, yet how international diversification–firm performance (IDP) relationship is influenced by firms’ ownership has not been adequately examined. Drawing on resource-based view of the firm, agency theory and institutional perspective, this chapter examines how ownership type impacts IDP relationship of a sample of 1074 publicly listed Indian firms. Results suggest that family and domestic corporate ownership positively moderates IDP relationship, but foreign corporate ownership results in negative moderation. Results further suggest that domestic and foreign financial institutional ownership imparts no statistically significant influence on IDP relationship. These findings are new to the literature. In conclusion, we discuss our study’s implications and limitations and provide directions for future research. Chapter 9 examines the topic of the institutional arrangement or interorganizational governance form, or equivalently the “mode of entry” of services companies, which, the authors argue, is a critical component of the entry strategy of a company into international markets. The behavior of companies from emerging economies presents interesting paradoxes, and hence newer theories have been proposed, along with different practical considerations. Entry mode data based on equity ownership in partial and full acquisitions, made by services companies entering from developed economies into developed economies and developed into emerging economies, are compared with that of companies from emerging economies entering into developed/emerging economies. The chapter concludes with recommendations on important factors to consider while making a systematic decision on institutional arrangements. In Chap. 10, authors argue that in the present time, the competitive marketing strategy has begun to focus on the speed of delivery as an essential factor of the service industry. Customers demand convenience and expect their desired products

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or services to be delivered as quickly as possible, when and where they want them. However, the marketers of the emerging economic countries have to face other challenges and have to position their product brand in such a way so that they can reach the mass of population. The growing trend of internet and high technical innovations in emerging countries like India offer many new options to increase the reach of the services that were conventionally provided by various means such as postal mails or couriers, physical presence and telephone communication. Services brand equity is defined as the customer’s preference or choice of the features or service offerings of same level between a branded and a nonbranded product. Researchers have stated that the primary focus of the consumer-based perspective is based on attitude, association, awareness, loyalty and attachment of the customers toward a brand. In Chap. 11, the author investigates the issues with services marketing in the current world and the role of technology in services marketing in overcoming those challenges. The chapter also describes how technology is helping companies from developed nations and creating a competitive advantage over companies based out of emerging markets. The author starts by looking at how two major technologies— internet and mobile have helped to change the world of services marketing and its impact on the overall marketing activities and processes. Author then does a detailed discussion about how technology has helped to overcome some of the challenges of services marketing and create new business models and service delivery options. A few new businesses have been explained to give the readers a more in-depth insight. The next section is about the situation in the emerging market and how many service marketing issues are still prevalent due to the lack of technology. The discussion highlights the big divide which technology is creating between the ways services are delivered in emerging markets. The impact on the business as well as social life has also been discussed. In Chap. 12, author takes a look into the interplay of services marketing with the elements of the marketing mix. It is acknowledged that services have become a dominant force in today’s economy. Some of the important services marketing activities like retail and health care are investigated, and an effort is made to understand and appreciate the dynamics of these sectors. Simultaneously, marketing mix has expanded to include three more Ps and their relevance and applicability to extant services marketing principles were researched and studied. In the end, the concept of social marketing for socially relevant and needed projects was studied as they are a very important vehicle of development in developing countries. Chapter 13 deals with service failure. Author opines that although it is ideal not to have service failure, it happens due to a variety of reasons. In service organizations, failures are imperative, and organizations need to place an appropriate strategy to deal with it. We compare the consumer complaint system in developed (Financial Ombudsman—UK) and emerging country (Banking Ombudsman—India). The theory of justice, which is investigated from an organizational perspective, can also be applied in the customer–service interface in the emerging country standpoint. Three types of justice include—distributive justice, procedural justice and interactional justice. Suitable recovery strategies can help the organization can turn the

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adverse situation into a favorable situation. Service organizations can rely on service guarantees, which can help to build customer trust. It is extremely challenging for an edited book to capture entire breadth of a subject comprehensively. Having said that, this book on Service Marketing Issues in Emerging Markets tries to encompass some of the very important and relevant issues of service marketing in the context of emerging economies. I hope you enjoy reading it. Kozhikode, India

Atanu Adhikari

Contents

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Servicescapes and E-Servicescapes Design Issues in Emerging Markets: Imperatives, Challenges and Agenda Setting . . . . . . . . . . . . Deepak S. Kumar and V. U. Vinitha

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Managing Customers in Online Two-Sided Platforms: A Case of App-Cabs in an Emerging Economy . . . . . . . . . . . . . . . . . . . . . . . . . . Megha Sharma and Subhasis Mishra

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Designing the Service Experience for Online Shoppers in Emerging Economies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Aishwarya Ramasundaram

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Paradigm of E-Commerce Services in Developed and Emerging Economies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Hitesh Bajpai and Atanu Adhikari

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Service Issues Affecting Consumer Behaviour Towards E-commerce Purchases in India . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Pralok Gupta and Ayona Bhattacharjee

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Direct Marketing Issues in Emerging Markets—Review and Proposition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Mahuya Adhikary and Atanu Adhikari

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E-Servicescape in Service: Theoretical Underpinnings and Emerging Market Implications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Rituparna Basu and Sayani Mandal

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How Does Ownership Type Influence International Diversification-Firm Performance Relationship? . . . . . . . . . . . . . . . . . Saptarshi Purakayastha and Somnath Lahiri

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Institutional Arrangements and Inter-Organizational Governance in Services Companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 119 Ramya Venkateswaran xiii

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10 Service Marketing Issues in Emerging Economies: Brand Equity of Domestic Service Brands . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 133 Rima Bhattacherjee and Atanu Adhikari 11 Traditional Services Marketing Issues—Analysis of Impact of Technology in Developed and Emerging Markets . . . . . . . . . . . . . . 151 Duswanta Roy 12 Marketing Mix and Customer Loyalty in Services Marketing . . . . . 167 Rahul Gupta Choudhury 13 Service Recovery and Continuity in Emerging Markets . . . . . . . . . . . 179 Dhananjay Bapat

Editor and Contributors

About the Editor Dr. Atanu Adhikari is a Professor at Indian Institute of Management (IIM) Kozhikode teaching marketing research, marketing management, strategic marketing to post graduate students, and advanced marketing research to doctoral students. He was a doctoral Fellow member of Royal Statistical Society London, visiting researcher at Syracuse University, USA and Commonwealth Academic Fellow to London Business School, UK. He has taught as guest faculty in several premier business schools in India and abroad. Prof. Adhikari’s current area of research includes consumer choice behavior, experience product marketing, pricing, and applications of Bayesian econometrics in marketing research. He is actively involved in scholarly academic research and has published his research work in many national and international peer reviewed academic journals and edited books published by leading international publishers. His research work has been selected and presented in number of prestigious international conferences organized by Marketing Science, American Marketing Association, European Marketing Academy, World Congress in Probability and Statistics, Royal Statistical Society and similar academic forums in the USA, UK, France, Germany, Italy, China, Australia and Singapore. Prof. Adhikari’s work has received several national and international awards and honors from Academy of Marketing Science USA, Marketing Management Association USA, EFMD Belgium, Oikos International Switzerland, Ivey Business School, Canada.

Contributors Atanu Adhikari Indian Institute of Management Kozhikode, Kozhikode, Kerala, India Mahuya Adhikary Budge Institute of Technology, Kolkata, India

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Editor and Contributors

Hitesh Bajpai Indian Institute of Management Kozhikode, Kozhikode, Kerala, India Dhananjay Bapat Indian Institute of Management Raipur, Raipur, Chattisgarh, India Rituparna Basu International Management Institute Kolkata, Kolkata, India Ayona Bhattacharjee International Management Institute, (IMI New Delhi), New Delhi, India Rima Bhattacherjee Indian Institute of Management Kozhikode, Kozhikode, Kerala, India Rahul Gupta Choudhury International Bhubaneswar, India

Management

Institute

(IMI),

Pralok Gupta Centre for WTO Studies, Indian Institute of Foreign Trade, New Delhi, India Deepak S. Kumar Indian Institute of Management Kozhikode, Kozhikode, Kerala, India Somnath Lahiri Illinois State University, Normal, IL, USA Sayani Mandal International Management Institute Kolkata, Kolkata, India Subhasis Mishra Operations Management Group, IIM Calcutta, Kolkata, India Saptarshi Purakayastha Indian Institute of Management Calcutta, Kolkata, West Bengal, India Aishwarya Ramasundaram Indian Institute of Management, Kozhikode, India Duswanta Roy PMP, Dallas, USA Megha Sharma Operations Management Group, IIM Calcutta, Kolkata, India Ramya Venkateswaran Indian Institute of Management Calcutta, Kolkata, India V. U. Vinitha Amrita School of Business, Amrita University, Coimbatore, India

Chapter 1

Servicescapes and E-Servicescapes Design Issues in Emerging Markets: Imperatives, Challenges and Agenda Setting Deepak S. Kumar and V. U. Vinitha

1 Introduction Globalisation is one phenomenon that has resulted in drastic economic prosperity in many emerging markets through the creation of jobs, development of the economy, infrastructure and trade. As a result, there is a substantial increase in the disposable income of the consumers and a heightened standard of living (Sheth, 2011). Yet, emerging markets are economically, socially structurally and culturally different from the developed western markets (Burgess & Steenkamp, 2006) and therefore need a very different approach while marketing, including the design of both offline and online service delivery environments in emerging markets. This chapter, therefore, explores the challenges that service marketing firms have to deal with while designing servicescapes and e-servicescapes in emerging markets. Emerging markets are increasingly becoming attractive for multi-national businesses and their investments in these markets are expected to grow to USD 30 trillion by the year 2025 (Atsmon, Child, Dobbs & Narsimhan, 2012; Sheth & Sinha, 2015). But those marketing strategies that worked well in developed markets seldom works in emerging markets. For instance, major brands like Kelloggs, KFC and McDonald had initial hiccups when they entered the emerging markets such as Indian and Chinese, with the same strategies they deployed in the West. On the other hand, when Starbucks came to India, they deliberately changed their global strategy by including a 1 https://economictimes.indiatimes.com/industry/services/retail/starbucks-goes-plush-for-india-

gives-its-stores-a-local-flavour/articleshow/22528520.cms?from=mdr accessed on 25th Sept 2019. D. S. Kumar (B) Indian Institute of Management Kozhikode, Kozhikode, Kerala, India e-mail: [email protected] V. U. Vinitha Amrita School of Business, Amrita University, Coimbatore, India e-mail: [email protected] © Springer Nature Singapore Pte Ltd. 2020 A. Adhikari (ed.), Services Marketing Issues in Emerging Economies, https://doi.org/10.1007/978-981-15-8787-0_1

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local flavour to each store in different places.1 These examples underscore the fact that the practices, frameworks and theories applicable in western markets seldom works in emerging markets (Burgess & Steenkamp, 2006). These challenges could be more pronounced in the case of marketing of services than the product marketing companies as services involve the participation of the customers directly in the processes. An understanding of the nature of customers and markets, therefore, is imperative for the success of services firms in emerging economies (Steenkamp, 2005). In the services domain, there are many services where service delivery environments— often referred to as ‘servicescapes’—play a significant role. Servicescapes (Bitner, 1992) is an essential factor that determines the success of any services, especially which they are facility driven. Many theoretical frameworks for servicescapes design are developed and tested based on insights into developed economies, and hence may not be directly applicable for emerging markets, due to the distinctive characteristics of emerging economies. The dearth of substantial research in emerging markets also makes it difficult for multinationals to create a sustainable competitive advantage vis-a-vis the local players who know their markets better than the foreign players.

2 Serviescapes Design Research: Problems and Prospects Servicescapes refers to the physical surroundings or ‘atmospherics’ designed by service firms to facilitate their service offerings (Bitner, 1992). Servicescapes forms an integral part of physical evidence in the expanded marketing mix (7Ps) as it is the environment in which the service delivery happens. The elements that constitute servicescapes design include ambient conditions, space or function and signs, symbols and artefacts (Bitner, 1992). Owing to the intangible nature of services, customers most often rely on physical evidence, the tangible cues which accompany service consumption and assess its quality to make decisions prior or during the service experience (Lovelock, Walker & Patterson, 2001). Careful design of servicescapes is a necessity for communicating service quality, meeting the customers’ expectations, and in providing superior service experience (Hooper, Coughlan & Mullen, 2013; Pullman & Gross, 2004). With digitisation and internet of things revolutionising the marketplace, the dimensions of servicescapes have extended to ‘e-servicescapes’—service environments in online services (Ballantyne & Nilsson, 2017; Nilsson & Ballantyne, 2014). With more and more virtual marketplace coming up, and its steady growth in consumer adoption, the need to shift focus to the design of e-servicescapes is also imperative for service firms. E-servicescapes elements like layout, design, colours, etc. have been studied in the service contexts such as hospitality, tourism, banking and healthcare (Ballantyne & Nilsson, 2017; Lee & Jeong, 2012; Nilsson & Ballantyne, 2014) Servicescapes design is an essential consideration for all facility-driven marketing firms, irrespective of the sector, and the nature of the design changes according to the service types. For instance, services like resorts, fine dining restaurants, mutispeciality hospitals need elaborate designs; whereas others like insurance companies

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or financial firms use leaner designs, as the customers spend relatively lesser time in servicescapes and so its influence on the decision-making is comparatively lower. So, one basis of classification of servicescapes is based on the customer segment it serves and the level of the physical presence of customers and employees in the servicescapes for service delivery. Self-service servicescapes (e.g. ATM and online services) are those in which a customer performs most of the activities, and very few supports are required there. On the other extreme, for service such as telecommunication, online financial services, the service delivery can ultimately happen remotely so little or no physical presence of the customers is required in servicescapes. The third type—interpersonal servicescapes, fall in the middle portion of the continuum, where the physical presence of the customers and employees are actively needed for the service to take place. A similar classification can be thought about for e-servicescapes and m-servicescapes too. Extending the classification of services provided by Bitner (1992), we propose a classification (provided in Table 1) that also includes the essential elements than can become a consideration in different types of servicescapes including e-servicescapes. Table 1 Classification of Servicescapes and e-Servicescapes Type

Servicescapes

e-Servicescapes

Lean

Elaborate

Self-service (customers only)

Minimal designs like equipment, temperature, etc.; signs and symbols (e.g. ATM, Kiosks)

Ambient conditions like temperature, air, décor, space and furnishings, signs symbols and artefacts (e.g. Golf course)

Attractive and legible layout, design, colours, sounds, symbols, icons, typefaces, animations, (e.g. e-com sites, payment gateways, gaming apps)

Interpersonal services (both customer and employee)

Minimal designs like equipment and furniture or decor; signs and symbols (e.g. Dry cleaners, Hair Salons)

Ambient conditions like lighting, music, temperature, air, décor, space and furnishings, signs symbols and artefacts (e.g. Hotels, Airlines, banks)

Attractive and legible layout, design, colours, sounds, symbols, icons, typefaces, animations, along with interactive features like Chatbots, virtual assistants, Avatars (e.g. Customer service on Shopping apps and websites)

Remote service (employees only)

Minimal designs like furniture, equipment (e.g. Telephone mail order desk)

Ambient conditions like air, lighting, equipment, spacious layouts, seating areas, décor (e.g. Insurance company, Other professional services)

More sophisticated technical yet employee-friendly websites

Source Adapted and extended based on Bitner (1992)

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3 Servicescape Designs in the Context of Developed Countries The most widely used model of servicescapes, proposed mainly for developed markets, is given by Bitner (1992). This model (presented in Fig. 1) draws from the discipline of environmental psychology theory, the S-O-R model by Mehrabian and Russell (1974). According to the model, customer internal responses and behaviours are greatly influenced by the environmental dimensions, employee-related factors and customer psychological factors. The environmental dimensions include mainly three sets of interrelated factors; (1) ambient conditions such as temperature, air quality, noise, lighting, music, odour which greatly influence the sensory perceptions of the consumers; (2) space/functional elements such as equipment, furnishings and layout which facilitate the easy and convenient movement and related service experience and (3) signs, symbols and artefacts including signage, style of décor, etc. which conveys meaning and creates customers’ expectations of service assurance. Subsequently, many studies have attempted addressing individual aspects of servicescape designs, such as overall visual aesthetics (e.g. Kumar, Purani & Sahadev, 2017), colour (e.g., Bellizzi & Hite, 1992), shapes of the design layout (e.g. Liu, Bogicevic & Mattila, 2018), presence of greenery (e.g. Purani & Kumar, 2018), music (Yalch & Spangenberg, 2000), signages (e.g. Otterbring, Wästlund, Gustafsson & Shams, 2014),

Fig. 1 Framework for understanding servicescapes and consumer responses (Reproduced from: Bitner, 1992, p. no: 60)

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lighting (Reynolds-McIlnay, Morrin & Nordfält, 2017), etc. While servicescape design issues in developed markets are moving towards more advanced aspects such as virtual reality displays, biophilic designs, etc., owing to the unique challenges posed by emerging markets, servicescape design needs are more frugal and restrictive. The next section discusses the unique characteristics of emerging markets.

4 Servicescape Design Challenges in Emerging Markets In the event of their growing importance in the global economy, it is also imperative to understand the major opportunities and challenges that coexist in the emerging markets. There have been instances of successful companies in the West were a total failure in emerging markets like China (e.g. Amazon, Google) owing to the cultural, political, economic, social and regulatory differences (Salomon, 2016; Sinha & Sheth, 2018). According to Sinha and Sheth (2018), the markets in these emerging economies are characterised by the following five factors—market heterogeneity, inadequate infrastructure, unbranded competition, the chronic shortage of resources and socio-political governance. We explain these characteristics in general and then, we map how each characteristic of these markets has implications for the design of servicescapes and e-servicescapes in these markets.

4.1 Market Heterogeneity The emerging markets are characterised by a significant divide between the highly fragmented consumer segments, within them (inter-country heterogeneity). More than half the population in these countries falls in Bottom of the Pyramid (BoP), a term referring to the households falling below the poverty line (Prahalad & Hammond, 2002; Sheth, 2011). Although there is a migration of rural population to urban cities, they are still under poverty and largely use unbranded products or buy from local/regional manufacturers. The income divide is also huge, with less than 3–5% of the people in the upper class and more than 50% below the poverty line. The low illiteracy rates are also a significant factor detrimental to serving the customers in these segments. Another crucial dimension that keeps the divide large is the different socio-cultural characteristics like religion, culture and traditions. We now present the five specific challenges this characteristic might impose on servicescape designs.

4.1.1

Low Disposable Income

Low disposable income of the consumers’ in these economies is a major challenge for service firms to design servicescapes and to target this segment in the emerging markets. Prior research has shown that customers in emerging markets give more

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importance to the perceived value of products/services than quality (Morgeson, Sharma & Hult, 2015; Singh & Sheth, 2018). Highly ambient service environments are likely to be perceived as very costly by the low-income segments and many a time this image keeps them off from using the services even if they are affordable. Hence care has to be taken to make the designs less overpowering or seem less ‘expensive’ so that customers are not worried to try and explore the options available.

4.1.2

Low Literacy Rates

Low literacy in consumers of these developing markets poses a threat to the new marketing firms entering the marketplace. One major challenge lies in their inability to comprehend verbal presentations, they tend to think in concrete dimensions, and therefore the consumption decisions are based on one attribute of the product/services, such as price (Viswanathan, Sridharan & Ritchie, 2010; Viswanathan, Rosa & Harris, 2005). Further, they tend to engage in more pictographic thinking and ‘struggle with elements of store environment’ (Viswanathan et al. 2005). The implications for the design of servicescapes in these circumstances would be to include more of signs, symbols and other forms of visual communication elements in the service environments while communicating to this group of consumers.

4.1.3

Rising Middle-Class Consumers

The improving economic prosperity in the EMs has given rise to the growth of middle-class consumers segments. This segment is characterised by their improved education, increasing disposable income, better living standards, rising aspirations for social class mobility and conspicuous consumption (Kravets & Sandicki, 2014) and projected to have a spending power that would hit USD 20 billion by 2025(Dobbs, 2012). This diversity calls for more ambient servicescapes designs in the firms who target these segments but also those which communicate value for money.

4.1.4

Rising Affluent Segments

There is also a growing population of a small but significant affluent class of consumers whose choices resemble those of the developed nations and require little or no adaptation of strategies or product/service offerings (Vila, Bharadwaj & Bahadir, 2015). Service firms catering to the needs of these segments might have to include elaborate designs including ambient conditions, posh décor and furnishings, which give a sense of premium service environment.

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Cultural Diversity

The diverse nature of consumer culture in these growing economies (Schmitt, 2014, 2015) also becomes a major factor of consideration while designing servicescapes. The meaning of signs and symbols attributed by consumers from a different culture can vary, and hence servicescape designers should be sensitive about this.

4.2 Inadequate Infrastructure There is a major population in these economies which still live in the underdeveloped rural areas where they even lack the basic amenities of water, electricity, infrastructure or other public utilities. These markets also lack efficient distribution/logistics networks, information systems, telecommunications, power and communication networks. Here also we present the three design changes as given under.

4.2.1

Infrastructure Challenges

Inadequate infrastructure remains to be a major challenge in emerging markets (Sheth, 2011). The infrastructure deficiencies such as dearth of space and buildings, lack of warehouses and other supply chain elements become a major constraint for services firms in reaching small towns or rural markets (Sheth & Sisodia, 2012). It also results in the shift to smaller formats, especially in the case of retail institutions (Lenartowicz, & Balasubramanian, 2009). Therefore servicescape design should be sensitive about space limitations and should think about innovative design approaches to overcome the same.

4.2.2

Slow Penetration of Technology

In emerging markets, the adoption of the internet and technology is at its infancy. Among the consumers at the bottom of the pyramid, the shift to online transactions is prolonged. Again, EM consumers have high long-term orientation and uncertainty avoidance (Hofstede, 1980) which retards their adoption of other channels like online and mobile commerce (Lu et al., 2018). The inefficient communication network in these countries could also be another reason for the slow penetration of these newage technologies. Slow penetration of technology will have a direct impact on eservicesapces and also on automated service delivery mechanisms (e.g. ATMs) in servicescapes.

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Chronic Shortage of Resources

Chronic shortage of factors of production (quality raw materials, energy, skilled labour) is yet another crucial challenge that needs to be addressed while marketing in these EMs. The availability of low-cost financial support is another issue that is characteristic of such markets.

4.3 Unbranded Competition There is a dearth of branded products in these markets owing to the low attractiveness of the market as the customers are majorly poor or have low disposable income resulting in demand for less expensive products (Burgess & Steenkamp, 2006; Sheth, 2011). The retailers are highly fragmented and most often sell counterfeit products or unregulated services as customers highly price sensitive and less sensitive towards product/service quality. Lenient IPR regulations in these markets also contribute to imitation and duplicate products as the unbranded players can produce or offer similar functionalities at a lesser cost (Guillén & García-Canal, 2012). The retail settings are minimal or have minimal servicescape elements such as space, or décor and most often have no regulations or standardisations for their processes. Hence, servicescape and e-servicescape designs, as key physical evidence than can create a significant visual impact on users, should be leveraged as a powerful and prominent marketing communication tool. Using theme walls, design and corporate colour themes, standardised merchandising, etc. would help to protect the brand against unbranded competition.

4.4 Socio-Political Governance Yet another characteristic of EM is the influence of various socio-political institutions such as local and regional governments, religions, clans and NGOs. Faith-based political systems govern many emerging markets (e.g. the Middle East nations). Few players of producers and merchants mostly cater to the needs of small and rural markets, and the consumers have very little bargaining power on their purchases.

5 Discussion and Recommendations Based on the above analysis on the above characteristics and issues related to emerging markets, we now discuss the servicescape and e-servicescape design modifications in which the corporates should be sensitive about when they think of

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extending their services into emerging markets. As stated above, our recommendations are focused mainly on services that are predominantly facility driven. In addressing market heterogeneity, companies can think of differentiating its services into multiple servicescape classes which can cater to the lower income group, middle income and the affluent class. For the lower and middle class, the scope of the service can be minimal. The objective here would be to familiarise the customers in lower and middle income with the brand, so that future upscaling (especially during migration) becomes easy. Given these constraints, the focus, therefore, shall be on providing lean-multiple touch points spread across different geographic locations. Facilities that are targeted at the affluent class can be in the main cities, where the option of providing elaborate services is high. Here the design philosophy can be based on providing a holistic experience by improving the ambient, design and symbolic elements. Given below the recommendations based on the environmental dimensions proposed by Bitner (1992) for both lean and elaborate servicescapes.

5.1 Ambient Conditions For the lower and middle-income segments, the focus on ambient conditions can be minimal, as the thrust is on providing lean-multiple touchpoints. So except for temperature control and air quality, other factors like music can be avoided. Since the facility is lean, marketers can think of exploring the exterior by providing canopies/green canopies to reduce interior crowding. For the upper-class segment, all ambient conditions are significant, and so all ambient parameters such as temperature, air quality, scent, should support the positioning of the brand. Again for predominantly hedonic services, ambient conditions are more significant, and hence appropriate modifications can be made, even for lean servicescapes. Lighting is also an important consideration in ambient condition. Marketers can consider tapping natural lighting, which will not only have cost-saving benefits but also has mood and stress restorative effects on consumers and employees (Purani & Kumar, 2018).

5.2 Space/Function Here also for low and middle income, each servicescape facility can be designed as a lean servicescape—with minimal space. Marketers can think of introducing modular interior furniture systems in servicescape designs with standard elements, so that installation, replication and reassembling become easy. This would also help to overcome the issues related to the lack of availability of skilled workforce. Some of the emerging economies, such as India is also famous for its frugal innovation models (Agnihotri, 2015). These models can be in developing modular servicescape designs by employing modular furniture systems and interior partition systems. As multiple, minimal servicescapes are proposed; marketers can also explore the option

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of segregating back end operations to one central processing centre, which can take care of multiple touchpoints. For instance, ThyroCare one of the world’s biggest thyroids testing laboratory based out of India follow a similar model, where for 700 odd collection centres, they have one single testing laboratory in Mumbai.2 Marketers can also think about developing automated servicescapes, like e-lobby for services such as banking, for wider reach. Participatory design, where the users also work with the designers in evolving the facility design (Sanoff, 2007) is yet another design approach which is recommended for servicescape design in emerging markets. For low and middle-income customers, this can not only meet the level of their aspirations of consumers but also can provide a sense of psychological empowerment (Hussain, Sanders & Steinert, 2012). For upper-class customers, marketers can think of making it elaborate by incorporating a rich mix of design elements and features. For generating a unique style, a non-modular approach is recommended here. The design can also incorporate natural finishes, such as wooden and natural stone finishes, which improves the overall feel of the space.

5.3 Sign, Symbol and Artefacts Considering the literacy level of the customers, employing suitable colour schemes and prominent brand elements would be quite crucial in developing brand familiarity and awareness. Visual cues, such as signage design in servicescapes, can be one of the most powerful to replace verbal in low literacy segments (Viswanathan et al., 2005). Also using uniform colour schemes shall be adopted to provide the same brand image across customer segments. Deploying landmarks in servicescapes (Kumar et al., 2017), such as interior elements helps the ease of navigation of customers.

5.4 E-Servicescape Designs E-servicescape design should also be made minimalistic in layout and look and feel. This not only helps for faster loading of the web portal even when the connectivity is low but also reduces the perceived visual complexity for users were by facilitating ease of adoption. The colour scheme followed should complement their physical servicescapes. Cultural sensitivity shall be taken into consideration, which deciding the colour scheme. Icons should be designed as more visual than verbal. Use of vernacular language in designs and voice-over commands can improve the adoption rates of people. Though the research-tested and validated in developed markets can be used as a basis for understanding the nuances of servicescapes design, marketers and scholars 2 https://timesofindia.indiatimes.com/business/india-business/when-health-is-wealth-thyrocares-

business-success-with-brand-capital/articleshow/63041337.cms accessed on 29th Sept 2019.

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must trigger a further inquiry into the factors that affect the design decisions in emerging markets. There is good work being done in understanding the emerging markets and designing business models and marketing strategies to tap into this evergrowing opportunity (Pels & Sheth, 2017; Sheth 2011; Sheth & Sinha, 2015). There is also a need for conducting empirical studies to examine how servicescapes designs can be used to address a large number of challenges while marketing to consumers in emerging markets, especially to the majority in the bottom of the pyramid.

References Agnihotri, A. (2015). Low-cost innovation in emerging markets. Journal of Strategic Marketing, 23(5), 399–411. Atsmon, Y., Child, P., Dobbs, R., & Narsimhan, L. (2012). Winning the $30 trillion decathlon: Going for gold in emerging markets. McKinsey Quarterly, 1–18. Ballantyne, D., & Nilsson, E. (2017). All that is solid melts into air: the servicescape in digital service space. Journal of Services Marketing, 31(3), 226–235. Bellizzi, J. A., & Hite, R. E. (1992). Environmental color, consumer feelings, and purchase likelihood. Psychology & marketing, 9(5), 347–363. Bitner, M. J. (1992). Servicescapes: The impact of physical surroundings on customers and employees. Journal of marketing, 56(2), 57–71. Burgess, S. M., & Steenkamp, J. B. E. (2006). Marketing renaissance: How research in emerging markets advances marketing science and practice. International Journal of Research in Marketing, 23(4), 337–356. Dobbs, Richard. (2012). Urban World: Cities and the rise of the consuming class. McKinsey Global Institute: Research Report. Guillén, M. F., & García-Canal, E. (2012). Emerging markets rule: Growth strategies of the new global giants. McGraw Hill Professional. Hofstede, G. (1980). Culture and organisations. International Studies of Management & Organization, 10(4), 15–41. Hooper, D., Coughlan, J., & R. Mullen, M. (2013). The servicescape as an antecedent to service quality and behavioral intentions. Journal of services marketing, 27(4), 271–280. https://link.spr inger.com/article/10.1007/s10490-015-9442-z. Hussain, S., Sanders, E. B. N., & Steinert, M. (2012). Participatory design with marginalised people in developing countries: Challenges and opportunities experienced in a field study in Cambodia. International Journal of Design, 6(2). Kravets, O., & Sandikci, O. (2014). Competently ordinary: New middle class consumers in the emerging markets. Journal of Marketing, 78(4), 125–140. Kumar, D. S., Purani, K., & Sahadev, S. (2017). Visual service scape aesthetics and consumer response: a holistic model. Journal of Services Marketing, 31(6), 556–573. Lee, S., & Jeong, M. (2012). Effects of e-servicescape on consumers’ flow experiences. Journal of Hospitality and Tourism Technology, 3(1), 47–59. Lenartowicz, T., & Balasubramanian, S. (2009). Practices and performance of small retail stores in developing economies. Journal of International Marketing, 17(1), 58–90. Liu, S. Q., Bogicevic, V., & Mattila, A. S. (2018). Circular vs. angular servicescape: “Shaping” customer response to a fast service encounter pace. Journal of Business Research, 89, 47–56. Lovelock, C. L., Walker, R. H., & Patterson, P. G. (2001). Services marketing: An Asia-Pacific perspective. Upper Saddle River: Prentice Hall Europe. Mehrabian, A., & Russell, J. A. (1974). An approach to environmental psychology. the MIT Press.

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Morgeson, F. V., III, Sharma, P. N., & Hult, G. T. M. (2015). Cross-national differences in consumer satisfaction: mobile services in emerging and developed markets. Journal of International Marketing, 23(2), 1–24. Nilsson, E., & Ballantyne, D. (2014). Reexamining the place of servicescape in marketing: a servicedominant logic perspective. Journal of Services Marketing, 28(5), 374–379. Otterbring, T., Wästlund, E., Gustafsson, A., & Shams, P. (2014). Vision (im)possible? The effects of in-store signage on customers’ visual attention. Journal of Retailing and Consumer Services, 21(5), 676–684. Pels, J., & Sheth, J. N. (2017). Business models to serve low-income consumers in emerging markets. Marketing Theory, 17(3), 373–391. Prahalad, C. K., & Hammond, A. (2002). Serving the world’s poor, profitably. Harvard Business Review, 80(9), 48–59. Pullman, M. E., & Gross, M. A. (2004). Ability of experience design elements to elicit emotions and loyalty behaviors. Decision Sciences, 35(3), 551–578. Purani, K., & Kumar, D. S. (2018). Exploring restorative potential of biophilic servicescapes. Journal of Services Marketing, 32(4), 414–429. Reynolds-McIlnay, R., Morrin, M., & Nordfält, J. (2017). How product–environment brightness contrast and product disarray impact consumer choice in retail environments. Journal of Retailing, 93(3), 266–282. Salomon, R. (2016). Global vision: How companies can overcome the pitfalls of globalisation. Springer. Sanoff, H. (2007). Editorial: Special issue on participatory design. Design Studies, 28(3), 213–215. Schmitt, B. (2014). The changing face of the Asian consumer. Singapore: McGraw Hill. Schmitt, B. (2015). The “new wave” in studying Asian markets and consumers. Marketing. Sheth, J. N. (2011). Impact of emerging markets on marketing: Rethinking existing perspectives and practices. Journal of marketing, 75(4), 166–182. Sheth, J. N., & Sinha, M. (2015). B2B branding in emerging markets: A sustainability perspective. Industrial Marketing Management, 51, 79–88. Sinha, M., & Sheth, J. (2018). Growing the pie in emerging markets: Marketing strategies for increasing the ratio of non-users to users. Journal of Business Research, 86, 217–224. Steenkamp, J. B. E. (2005). Moving out of the US silo: A call to arms for conducting international marketing research. Journal of Marketing, 69(4), 6–8. Vila, O. R., Bharadwaj, S. G., & Bahadir, S. C. (2015). Exploration-and exploitation-oriented marketing strategies and sales growth in emerging markets. Customer Needs and Solutions, 2(4), 277–289. Viswanathan, M., Rosa, J. A., & Harris, J. E. (2005). Decision making and coping of functionally illiterate consumers and some implications for marketing management. Journal of Marketing, 69(1), 15–31. Viswanathan, M., Sridharan, S., & Ritchie, R. (2010). Understanding consumption and entrepreneurship in subsistence marketplaces. Journal of Business Research, 63(6), 570–581. Yalch, R. F., & Spangenberg, E. R. (2000). The effects of music in a retail setting on real and perceived shopping times. Journal of Business Research, 49(2), 139–147.

Deepak S. Kumar is an Assistant Professor in Marketing at Indian Institute of Management Kozhikode, India. His present research interests include visual aesthetics, image analytics, servicescapes, technology adoption and e-atmospherics. He has published in many international journals including Journal of Services Marketing, Journal of Retailing and Consumer Services, The Marketing Review, Journal of Hospitality and Tourism Technology, AMA Summer/Winter Conference proceedings.

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V. U. Vinitha is an Assistant Professor in the area of Marketing at Amrita School of Business, Coimbatore, India. She has five years of industry experience and has been teaching in MBA programs for the last 13 years in the area of Marketing and Consumer Behavior. She is currently pursuing her PhD in Marketing from Amrita School of Business, Coimbatore. Her research interests include anthropomorphism, branding, visual aesthetics, servicescapes design and sensory marketing.

Chapter 2

Managing Customers in Online Two-Sided Platforms: A Case of App-Cabs in an Emerging Economy Megha Sharma and Subhasis Mishra

1 Introduction Traditionally, a two-sided market facilitates interaction between two groups with complementary needs and gains by charging fees to either one or both the groups. Examples of traditional two-sided markets include farmers’ markets, shopping centers, malls, real estate agents, placement agencies. Each of these markets connects a group of sellers interested in selling a product or a service to a group of interested buyers. For example, real estate agents and placement agencies connect sellers with potential buyers, and recruiters with those seeking employment, respectively. Typically, the decision to charge fee to a group depends on the groups’ needs for the platform. For instance, malls and markets charge only the seller, whereas real estate agents and placement agencies charge both the parties for facilitating the interaction. Advancements in information and communication technologies (ICT) and increasing mobile and internet penetration have given rise to online variants of two-sided markets, commonly referred to as “online two-sided platforms” (OTSPs). Examples of OTSPs include Uber, Ola and Lyft in transport sector, Airbnb and Oyo in hospitality, Amazon, Alibaba, Flipkart in household goods, Upwork and Urbanclap in the professional labor market, YouTube, Amazon Prime, Netflix, Hotstar in video sharing business, Swiggy and Zomato in food delivery domain. Irrespective of whether they facilitate the transaction of goods or services between the two groups, the OTSPs themselves are service businesses. For simplicity, in this chapter, we refer to the group availing services or buying products as buyers and the group providing services or selling products as sellers. M. Sharma (B) · S. Mishra Operations Management Group, IIM Calcutta, Kolkata, India e-mail: [email protected] S. Mishra e-mail: [email protected] © Springer Nature Singapore Pte Ltd. 2020 A. Adhikari (ed.), Services Marketing Issues in Emerging Economies, https://doi.org/10.1007/978-981-15-8787-0_2

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Service management in the context of OTSPs exhibits several unique characteristics and problems. For example, the OTSPs do not have control over the quality of service provided by sellers to the buyers. Uber, for instance, does not have control over drivers’ behavior with the rider, and Airbnb does not have control over the cleanliness of the property. Although most OTSPs use a two-way rating mechanism, wherein the buyers and sellers rate each other, it may not indicate the true quality of the service rendered. OTSPs, unlike other business models, face high supply uncertainty in addition to demand uncertainty. For example, each Uber driver is free to choose their working hours, and each Airbnb host decides the dates for which their property is available for rent. Moreover, given the lack of a formal employee– employer relationship between the sellers and the OTSPs, sellers typically have very low loyalty toward the OTSP. In this chapter, we focus on the problems of managing customers in the context of OTSPs. It is important to note that for an OTSP both the groups that it serves qualify as its customers. Business model for most of the OTSP was designed for the market of developed economies and has worked well there. An imitation of the same has not worked seamlessly in emerging markets such as India. The reasons lie in the cultural, economic, regulatory and infrastructural differences between these markets. For instance, the US market has high car ownership among the cab drivers resulting in a much lower setup cost for a driver to join. However, in India, most of the cab drivers are employed with fleet operators. Also, different cities in India have different preferred modes of transport, like metro, buses, autos, local trains which are faster and cheaper resulting in riders having a higher price elasticity of demand, thus reducing the effectiveness of app-cab’s surge pricing. Congested roads and poor accuracy of navigation software, owing to unplanned growth, have also been a deterrent. Thus it is pertinent for the OTSP to take these differences into account for the success of the business and overall improvement in social welfare. The chapter is organized as follows. In Sect. 2, we present the challenges faced by OTSPs in managing their customers with a special focus on cab markets, commonly referred to as “app-cabs.” In Sect. 3, we review a model that maximizes the OTSP’s profit. The assumptions of this model, though valid in the context of developed countries, do not hold for emerging markets. Therefore, in Sect. 4, we extend this model to emerging economies. We summarize our findings in Sect. 5 and provide recommendations.

2 Managing Customers in Online Two-Sided Platforms OTSP business model strives to match demand and supply with an interplay of “network effect” (Chu & Manchanda, 2016). The network effect refers to the perpetual cycle of an increase in the size of one group resulting in increasing the size of the other group, which in turn causes the increase in the former group’s size (Van Alstyne, Parker, & Choudary, 2016). For example, as more drivers join an app-cab platform,

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the number of riders signing up increases as they have access to a greater number of drivers, which in turn makes the app lucrative to more drivers. A majority of the OTSPs use self-selection as the quality control mechanism for both buyers and sellers (Li & Hitt, 2008). More specifically, after each transaction, both seller and buyer provide feedback for each other, typically in terms of quantitative ratings, at times followed by a qualitative review, which can be accessed by all members of the other group. These feedbacks influence buyers and sellers to accept or decline an opportunity to transact. Given these underpinnings, getting the initial set of buyers and sellers to join the platform is crucial for OTSPs’ success. Therefore, OTSPs use a variety of incentives to get customers on-board, including referral programs for both buyers and sellers, monetary rewards for sellers, free services for buyers, and even freebies from other complementary platforms. We compare the effectiveness of OTSPs in implementing these in the context of developed versus emerging economies. Although we focus on app-cabs, the arguments apply to OTSPs in other industries as well. While OTSPs are growing in terms of their market valuation, not all of their actions have resulted in desired outcomes. Len Sherman, in his four-part series, enumerates the assumptions behind the OTSP model for Uber and shows how some of these assumptions are not realistic in the long run.1 An app-cab benefits from drivers having flexible working hours which attracts people who are willing to drive part-time to supplement their primary income. Usually, a dynamic pricing mechanism referred to as “surge pricing,” where if the demand exceeds the available supply the price is increased, incentivizes more drivers to start their working hours when demand is high. For the riders, app-cab provides the ability to see the availability of cabs in the vicinity, to book a cab without any human intervention, and the cashless payment facility. It is important to note that the business model was designed for the US market and has worked well there. However, many aspects of this model have not worked seamlessly in emerging markets such as India. The reasons lie in the cultural, economic, regulatory and infrastructural differences between these markets. For instance, the US market has high car ownership among the cab drivers resulting in a much lower setup cost for a driver to join. However, in India, most of the cab drivers are employed with fleet operators. Therefore, the drivers do not get to take all their earnings home, but have to pay to the car owners. While in the USA, a significant proportion of drivers use app-cab to supplement their primary income, a majority of drivers in India depend on app-cab for their primary income. Moreover, cab-driving, a bluecollared job, has lower societal acceptance among the economically middle class in India. Additionally, smartphone penetration in India is lower in low-income stratum and, the required ability to use a smartphone, its navigation app along with the ability to converse in English have worked as deterrents for many drivers. One can also observe disparities in the rider behavior between the two economies. The introduction of app-cabs has reduced car ownership among riders in the USA. However, in India, the ownership pattern has not changed, since owning the car is 1 Sherman. L (2019). Can Uber be ever profitable? Retrieved from: https://www.forbes.com/sites/len

sherman/2019/06/02/can-uber-ever-be-profitable/#394d33ee5785. Accessed on: October 19, 2019.

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also considered a status symbol. Also, different cities in India have different preferred modes of transport, like metro, buses, autos, local trains, which are faster and cheaper resulting in riders having a higher price elasticity of demand, thus reducing the effectiveness of app-cab’s surge pricing. It is very common for riders to either wait for the price to drop or to take an alternate mode of transport either to the destination or to another location with higher cab availability. Moreover, the credit card penetration in India is much lower than in the USA, and given the security concerns, customers are averse to using their credit cards for the cabs. Congested roads and poor accuracy of navigation software, owing to unplanned growth, have also been a deterrent. The app-cab companies have recognized some of these issues over time and have adjusted their offerings. However, some of these changes took too long, thus giving advantage to competitors and had adverse impact on the business due to network effect. For example, even though Uber was launched in India in August 2013,2 it was only in 2017 that it accepted cash payment, unlike Ola cabs which used cash as a payment mode since its inception.3 Uber has been slow in appreciating the infrastructural, cultural and behavioral differences between the two countries. For example, the app until 2017 used to show riders the surge multiplier for their trip fare while booking, which resulted in many riders looking for alternate mode. Moreover, the surge pricing also brought in the regulator’s flak, with many state governments either banning the surge pricing or capping it.4 It started displaying an estimated trip fare instead of an explicit multiplier only from 2017.5 Similarly, it was only in 2018 that it addressed the problem of poor internet connectivity, by launching Uber lite,6 an app for 2G connectivity. Aggressive promotions used by the app-cab in their introductory phase have not worked in their favor. Aggressive promotional discounts for riders gave a false impression of higher demand, and hence higher earning potential to drivers. In hopes of higher earning, some drivers bought cars using secondary financing. The pressure to pay back the loans has not only overshadowed the utility of working on their own

2 Bhattacharya.

A (2019). Ola vs Uber: The latest score in the great Indian taxi-app game. Retrieved from: https://qz.com/india/1545042/ola-vs-uber-the-latest-score-in-the-great-ind ian-taxi-app-game/. Accessed on: October 19, 2019. 3 Mishra. D (2017). At 65%, Uber sees more cash payments than Ola. Retrieved from: http://timeso findia.indiatimes.com/articleshow/59554052.cms?utm_source=contentofinterest&utm_medium= text&utm_campaign=cppst. Accessed on: October 19, 2019. 4 Peermohamed. A (2019). New Rules For Cab Aggregators: Centre may allow three times the base fare as surge pricing. Retrieved from: https://economictimes.indiatimes.com/small-biz/startups/ newsbuzz/centre-may-allow-three-times-the-base-fare-as-surge-pricing/articleshow/71105235. cms?from=mdr. Accessed on: October 19, 2019. 5 Newcomer. E (2017). Uber’s new pricing model charges some passengers more. Retrieved from: http://economictimes.indiatimes.com/articleshow/58868298.cms?from=mdr&utm_source= contentofinterest&utm_medium=text&utm_campaign=cppst . Accessed on: October 19, 2019. 6 Hawkins. A. J (2018). Uber Lite is a slimmed-down, 5 MB version of the app for emerging markets. Retrieved from: https://www.theverge.com/2018/6/12/17450282/uber-lite-app-emergingmarket-india. Accessed on: October 19, 2019.

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terms but has also reduced their tolerance for not-so-profitable trips.7 Many drivers, after accepting a trip, call the rider to figure out the destination and cancel the trip if they perceive the trip to be unprofitable. This is precisely the same problem that the app-cabs were introduced to solve. Repeated cancellations make riders wary of relying on the cabs. Several instances of bad behavior by drivers have also been reported in the media,8 which negatively affects the riders’ satisfaction.

3 A Profit Maximization Model for Developed Countries In this section, we present an analytical model of a two-sided monopoly platform presented in Armstrong (2006). Consider a platform, connecting a group of drivers and a group of riders. The utility that a driver derives by joining the platform (u d ) depends on the number of riders (n r ) on the platform and the price the platform charges ( pd ). For simplicity, a uniform price across drivers is considered. Similarly, the rider’s utility (u r ) depends on the number of drivers on the platform (n d ) and the price that it has to pay to the platform ( pr ). If αr and αd denote the marginal benefit, a rider (or driver) derives from an additional driver (or rider) joining the platform, then their utilities are given as u d = αd n r − pd ; u r = αr n d − pr .

(1)

The number of drivers and riders on the platform are functions of their respective utilities. n d = ϕd (u d ); n r = ϕr (u r ),

(2)

where ϕd (.) and ϕr (.) are increasing functions. Denoting the platform’s costs to serve a driver and a rider by f d and fr , respectively, the platform’s profit (π ) can be written as π = n d ( pd − f d ) + n r ( pr − fr ). Substituting the values of n d , n r , pd and pr , the profit maximizing prices that the platform should charge to the drivers and the riders can be determined using the following equation. π (u d , u r ) = ϕd (u d )[αd ϕr (u r ) − u d − f d ] + ϕr (u r )[αr ϕd (u d ) − u r − fr ]

(3)

The profit-maximizing prices are then given as 7 Dixit.

P (2018). People Are Mad About Uber and Ola Drivers Canceling Rides Based On Their Destination. Retrieved from: https://www.buzzfeednews.com/article/pranavdixit/uber-ola-driverscancel-india. Accessed on: October 10, 2019. 8 India Today Web Desk (2019). Get out or I’ll tear your clothes: Uber driver tells Bengaluru woman during cab ride. Retrieved from: https://www.indiatoday.in/trending-news/story/will-tearyour-clothes-if-you-don-t-get-out-uber-driver-tells-bengaluru-woman-during-cab-ride-15773162019-08-05. Accessed on: October 18, 2019.

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pd = f d − ar n r +

ϕd (u d ) ϕr (u r ) ; pr = fr − ad n d +   ϕd (u d ) ϕr (u r )

(4)

4 Extending the Model to Emerging Markets As discussed earlier, in India, it is common for OTSP drivers and riders to call each other before starting the trip. Reasons include poor accuracy of the navigation system, poor traffic conditions and lesser familiarity with the app among riders and drivers. This gives rise to a host of problems such as the driver eliciting the destination from the rider, and then either canceling the trip, or forcing the rider to cancel, thus causing annoyance to riders. Possible reasons for the drivers’ disinterest in certain trips include highly skewed demand distribution across different regions of a city, implying a low probability of getting a ride back from destination within reasonable time; areas with high traffic congestion or poor road conditions or poor layout typically result in lower trip fare for significantly higher trip time or driving effort. Repeated trip-cancellation experiences reduce the rider’s trust in the app, and hence to be certain about the cab’s arrival, riders prefer to call the driver. As most of these factors, such as traffic congestion, layout, road conditions are beyond the OTSPs control, it seems only logical for the OTSPs to incorporate these while determining the profit-maximizing prices. To incorporate this phenomenon, we model the utility of a driver as the benefit it derives from the group of riders less the fee it pays to the platform and the disutility caused by not-so-profitable riders. Let βd represent the marginal disutility caused by each not-so-profitable rider and logn r represent their number. Similarly, for a rider while each additional driver brings in αr benefits, logn d of them also results in trip cancellation, each with a disutility of βr . Therefore, the utility functions can be expressed as u d = αd n r − pd − βd logn r ; u r = αr n d − pr − βr logn d .

(5)

Given these utility functions, the platform’s profit can be written as π (u d , u r ) = ϕd (u d )[αd ϕr (u r ) − u d − f d − βd logn r ] + ϕr (u r )[αr ϕd (u d ) − u r − fr − βr logn d ].

(6)

The profit-maximizing prices are given as follows. pd = f d − ar n r +

n d βr n r n r βd n d ; pd = f r − a d n d +    n r n r nd nd

(7)

Comparing the profit-maximizing prices for developed and emerging markets (Eqs. 4 and 7) shows that due to the negative network effect, the platform charges

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higher prices in the emerging market. The price for a driver is adjusted upward by a factor that severely penalizes the driver for the disutility caused to the riders. Similar interpretation holds for the price charged to the riders. It is important to note here, that a platform using profit maximization as its price-setting criterion in emerging markets, charges higher price to both the groups compared with the prices in the developed market. However, these higher prices result in a downward spiral for the platform—higher prices make drivers more averse to not-so-profitable trips, thus leading to higher cancelations of trips, which reduces the rider’s utility thus reducing the number of riders on the platform, which further reduces the drivers’ earnings leading to their exodus from the platform. Therefore, for long-term sustainability, the platform should instead attempt to maximize the social welfare until most of the disturbing factors are taken care of. Let vd (u d ) and vr (u r ) denote the aggregate driver and rider surplus, respectively, we assume vi (.) = ϕi (u i ). The total welfare can then be written as w = π (u d , u r ) + vd (u d ) + vr (u r ).

(8)

The welfare-maximizing prices are as given below. pd = f d − ar n r +

βr n r βd n d ; pd = f r − a d n d +   nr nd

(9)

As can be seen from Eq. 9, the prices charged to both the groups are lower under welfare-maximization objective. Charging the welfare-maximizing prices is likely to improve both the drivers’ and riders’ satisfaction from the service. Reducing the prices charged to the debt-ridden drivers can improve their financial conditions which in turn would allow them to offer some of the not-so-profitable trip. Moreover, with lesser number of canceled trips, riders’ reliance on app-cab is likely to increase in the long run, which will further improve the drivers’ earnings and satisfaction.

5 Discussions and Recommendations OTSPs that are successful in the developed market need not necessarily be successful in the emerging market with the same business model. Due consideration needs to be given to the cultural, economic, regulatory and infrastructural differences between these markets. For the sake of brevity, we consider only app-cabs and through our model have captured the infrastructural differences between the two economies. Similar model could also be built considering other disparities between the economies. Lack of proper infrastructure and the resulting heightened negative network effect result in platform charging prices in the emerging market, under profit-maximizing setting. This in turn results in drivers being penalized heavily for the disutility caused to the riders. This could lead to dissatisfaction among drivers resulting in frequent

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strikes and poor behavior, as is evident from such occurrences in real life.9 This has resulted in the exodus of drivers and riders from the market. In context of the emerging economy, it makes more sense for an OTSP to base their pricing for welfare-maximizing setting till a critical market share is captured or disturbing factors like the infrastructure are improved. Initially, platforms should try to maximize welfare, thus improving customer satisfaction. Perhaps once the network has reached a critical size and the external issues have been either resolved or the platform has found a suitable way to manage them, they can change their pricing objective. This would improve the satisfaction of the rider and driver as they are charged less by the platform. Reducing prices could be more important to the drivers in the emerging economy wherein more often than not they are debt-ridden. Moreover, given the business model since both riders’ and drivers’ loyalty is very low, platforms should not burn too much cash building only temporary customer base.

References Armstrong, M. (2006). Competition in two-sided markets. The Rand Journal of Economics, 37(3), 668–691. https://doi.org/10.1111/j.1756-2171.2006.tb00037.x. Chu, J., & Manchanda, P. (2016). Quantifying cross and direct network effects in online consumerto-consumer platforms. Marketing Science, 35(6), 870–893. https://doi.org/10.1287/mksc.2016. 0976. Li, X., & Hitt, L. M. (2008). Self-selection and information role of online product reviews. Information Systems Research, 19(4), 456–474. https://doi.org/10.1287/isre.1070.0154. Van Alstyne, M. W., Parker, G. G., & Choudary, S. P. (2016). Spotlight on how platforms are reshaping business pipelines, platforms, and the new rules of strategy scale now trumps differentiation. Harvard Business Review, 94(4), 54–62. Retrieved from https://hbr.org/2016/04/pipeli nes-platforms-and-the-new-rules-of-strategy.

Megha Sharma is an Associate Professor in the Operations Management Department at the Indian Institute of Management Calcutta. Her research interests include pricing and revenue management, design and evaluation of reliable networks, reliable facility location problems and design of sustainable supply chain networks. Her research has appeared in several journals such as Omega, Journal of Revenue and Pricing Management, IEEE Transactions on Reliability, INFOR etc. Her co-authored papers have won awards at several conferences including the POMS 2020 conference, IEOM 2019 Conference, SOM 2019 Conference. Subhasis Mishra is a Doctoral student at the Indian Institute of Management Calcutta (IIM Calcutta) specializing in Operations Management. His interests are in the areas of operations management for environmental sustainability, forecasting in operations management, supply chain management (SCM), multi-sided online platform, and game theory applications in operations management. 9 Bhattacharya.

A (2019). Ola vs Uber: The latest score in the great Indian taxi-app game. Retrieved from: https://qz.com/india/1545042/ola-vs-uber-the-latest-score-in-the-great-ind ian-taxi-app-game/. Accessed on: October 18, 2019.

Chapter 3

Designing the Service Experience for Online Shoppers in Emerging Economies Aishwarya Ramasundaram

1 Introduction On November 8th, 2016, the Prime Minister of India made an unprecedented announcement that the government would be curbing five hundred and thousand rupee notes to break the grip of corruption and black money.1 The announcement, which put 85% of currency out of circulation to curb black money,2 had a boomerang effect on consumption behavior. The move fuelled the rise of the digital economy in India and disrupted the way consumers search, buy, and use consumer products and services. Categories like digital wallets, online cab services, online food delivery services, and groceries quickly emerged as top-performing categories.3 On the other side of the Himalayas, the Chinese e-commerce market, which is currently serving 1.4 billion consumers and a booming middle class, has emerged as one of the most significant global players in E-commerce. Similar to India, the rise in adoption of digital payments has fuelled the growth of E-commerce purchases along with an increase in Omnichannel marketing and social commerce adoption.4 Forcing out 1 Prime Minister’s Office. (2016). Text of Prime Minister’s Address to the Nation. Retrieved October 19, 2019, from Press Information Bureau website: https://pib.nic.in/newsite/erelease.aspx. 2 Goswami, D. (2017). Mitron… It has been a year since that speech - India News. Retrieved October 19, 2019, from India Today website: https://www.indiatoday.in/india/story/narendra-modi-demone tisation-november-8-address-recap-1082239-2017-11-08. 3 Effects of Demonetisation on Online Shopping. (2016). Retrieved October 19, 2019, from The Economic Times website: https://economictimes.indiatimes.com/effects-of-demonetisation-on-onl ine-shopping/articleshow/56315840.cms?from=mdr. 4 Arora, G. (n.d.). The continued momentum of e-commerce growth in China | China eCommerce Trends | Mobile Payments in China | PwC India. Retrieved October 19, 2019, from PWC website: https://www.pwc.in/consulting/financial-services/fintech/fintech-insights/the-contin ued-momentum-of-e-commerce-growth-in-china.html.

A. Ramasundaram (B) Indian Institute of Management, Kozhikode, India e-mail: [email protected] © Springer Nature Singapore Pte Ltd. 2020 A. Adhikari (ed.), Services Marketing Issues in Emerging Economies, https://doi.org/10.1007/978-981-15-8787-0_3

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even global players like Amazon due to stiff competition, the Chinese E-commerce market is dominated by a few local players like Alibaba, who strive to give a better and richer technological experience to the discerning Chinese consumer every day. Even a cursory look at the E-commerce adoption in emerging economies shows that emerging economies are becoming digital superpowers that the rest of the world cannot ignore. While macroeconomic factors are shaping digitization, it is the consumer’s response to the rapid digitization that is spurring further growth and adoption of E-commerce. With advancements in mobile technology and an increase in its adoption, firms hence find it essential to redesign their interaction and service delivery features to ensure an optimum customer experience. Companies have lost over 24 percent of the annual revenue due to poor customer experience, accounting for over $50 billion lost revenue in the USA (Econsultancy 2011). With a competitor available just a click away, firms should design unique service experiences in the short interaction with customers online. Big firms like Amazon and Google now have chief experience officers and customer experience managers for effectively managing consumer experiences (Lemon and Verhoef 2016). Experiences and consumption behavior are shaped by market norms. While much of marketing research has focused on developing theories and testing them in developed markets, they fail to study and test the theories in emerging markets, which differ in socioeconomic, demographic, cultural, and regulatory factors (Burgess and Steenkamp 2006). Factors driving the customer service experience while shopping online will differ across emerging and developed economies. How then should companies entering or operating in emerging markets compete for a place in the consumer’s mind through experience design? To address these issues, we will understand the online service experience design, its drivers, and the consequences in this chapter. We focus on service experience design in e-commerce portals where consumers buy a product or service online. We also attempt to understand the differences in customer experiences between an emerging and developed economy and try to understand elements critical for good customer experience in an emerging economy. The chapter is organized as follows. The following section takes a close look at factors driving online shopping in the Emerging economies by highlighting the overlapping and differentiating factors of e-commerce usage in emerging economies with a discussion on implications for managers. We discuss the factors which lead to a satisfying versus a dissatisfying customer experience. The chapter concludes with a discussion on how marketers can use the findings highlighted in the two sections for crafting successful marketing strategies while penetrating the emerging markets.

2 Online Service Experience Design Experience refers to cumulative customer perceptions that consumers have when interacting with a product or service (Pullman and Gross 2004). Service providers create experiences by using the services as the stage and goods as props to engage

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customers and create memorable events. Another way to create experiences is through ensuring that customers have sensations or acquire knowledge when interacting with different elements of a context (Ding et al. 2010). Consumer experience is influenced by the clues in the service systems. These clues are the goods, services, or any other stimuli which customers hear, see, or perceive while interacting with the service system (Berry et al. 2006). The experience elements can be engineered to influence the customer’s assessment of the experience using clues (Berry et al. 2006). The three types of clues used in designing the service experience are functional clues, mechanical clues, and humanistic clues (Xin et al. 2010; Berry et al. 2002; Ding et al. 2010). Functional clues refer to the technical quality and reliability of offering. Mechanical cues are the physical representation of the intangible services. Humanistic clues refer to the service provider’s behavior or appearance. When a customer shops online, the three types of clues shape a consumer’s experience (Ding et al. 2010). The functional clues are process elements which encompass the ease of use and usefulness. Process elements include design, functionality, reliability, and availability (DeLone and McLean 2003; Parasuraman et al. 2005). Mechanical clues include the product variety portrayed in the site (Ding et al. 2010). The customer service element of the e-commerce site provides the humanistic element and includes the service representatives’ knowledge, responsiveness, courtesy, and ease of access (Parasuraman et al. 2005). Research has shown that experience can be analyzed using a dual-layer framework (Ding et al. 2010). When a customer enters a service provider’s website, they first experience three major service system components, namely process features, customer services, and product offerings, which map to the three clues. These service system components form the first layer of the customer experience and shape the customer’s perception of the brand and website. After perceiving performance, customers go into a state of flow experience. An online flow is a cognitive state experienced during attention, arousal, navigation, interactivity, and telepresence (Novak et al. 2000). Flow experiences are also linked to service assessments and form the second layer of the online customer experience (Ding et al. 2010).

2.1 Frameworks for Designing the Online Service Experience Design Two theories are popularly being used to explain how website characteristics influence behavior in an online shopping scenario. The first model, called the stimulus– organism–response (SOR) model posits that a stimulus such as a website interface influences an individual’s internal affective and cognitive states. These states, in turn, determine the approach or avoidance intention that the consumer develops toward the site. The affective and cognitive states of the organism thus act as mediating or intervening variables in this model (Eroglu et al. 2003; Mehrabian and Russell 1974). If a service provider wishes to create a pleasant customer experience, they need to

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SƟmulus Func onal clues Mechanical clues Humanis c clues

Organism Affect Cogni on (flow experience)

Response Approach or avoidance behavior

Fig. 1 The stimulus–organism–response model. Adapted from (Eroglu et al. 2003)

Technology Func onal clues Mechanical clues Humanis c clues

Perceived usefulness

Aƫtud

Behavioural intenƟon

Actual Use

Perceived ease of use

Fig. 2 The technology acceptance model (Davis et al. 1989)

carefully manage the functional, mechanical, and humanistic clues which serve as a stimulus for the customer. The stimuli shape the first layer of the customer experience. The perception influences the customer’s cognitive and affective response to the website. A well-designed stimulus will push the customer into a cognitive state of flow experience. An outcome of a positive service experience is the intention to purchase again from the website (Fig. 1). The second model is the technology acceptance model or TAM (Davis et al. 1989). According to this model, two specific behavioral beliefs affect behavioral intent, specifically perceived ease of use (PEOU) and perceived usefulness (PU). PEOU is the perception that a particular system or application is easy to use and perceived usefulness is the perceived benefits that the site will provide to the consumer. PU mediates the effect of PEOU on behavioral intentions (Davis et al. 1989). From a service experience design perspective, the technology characteristics shape the customer’s experience based on the PU and PEOU of the website (Fig. 2).

2.2 Outcomes of Online Service Experience The two frameworks described above broadly speak about approach and avoidance as a consequence of experience design. Approach is the intention to use or revisit

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the website while avoidance is the tendency to move away from the website. A key outcome of a good service experience design is that it leads to higher satisfaction with the service provider, and increases approach behavior or intention to return to the website (Ding et al. 2010; Parasuraman et al. 2005). In the next section, we will discuss the findings of studies using the above framework with particular reference to emerging and developed economies.

3 Online Service Experience in Developed Economies The structure of retail markets depends on its stage of development (Reinartz et al. 2011). Differences in customer level, legal level, industry level, supplier level, and technology-related challenges have caused structural differences and have resulted in differences in the experiences sought across markets. In this section, we present research findings on service experiences from studies undertaken in developed markets. This is followed by a discussion on the unique characteristics of emerging economies and differences in customer experiences in an emerging economy. Studies undertaken in developed markets have looked at different types of e-commerce characteristics and their effect on behavior. We classify the findings based on functional, mechanical, and humanistic clues of service system design. Store layout (Manganari et al. 2011), navigation (Bart et al. 2005), and warm colors (Bagchi and Cheema 2013) are some functional clues that affect the emotional responses to the site. Mechanical cues like product presentation have been found to impact behavior. Concrete imagery portrayed in the sites improves the online experience (Yoo and Kim 2014). Some humanistic clues studied include Avatars and the interactivity feature on the website. Avatars are general graphic representations that are personified using computer technology (Holzwarth et al. 2006). Expert avatars are more effective at high levels of involvement, and this effect is mediated by their perceptions of credibility (Holzwarth et al. 2006). Interactivity refers to the customized presentation of information, facilitated communications, and entertainment for the customer. These could include 24/7 customer service representatives, active server pages allowing customers to customize the information appearing on the Web page, 3D virtual tours, games, and contests (Fiore et al. 2005). Interactivity offers the hedonic benefit of enjoyment (Koufaris 2002). The additional information from the interactivity feature gives a feeling of control, enjoyment, and involvement (Fiore and Jin 2003). Bart et al. (2005) find that community features in the site, which allow users to interact with other consumers, increase the trust toward the site. Humanistic clues induce perceptions of website socialness, which positively influences flow, hedonic value, utilitarian value, and patronage intentions.

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4 Online Service Experience in Emerging Economies Consumers in emerging markets differ from those in developed markets in socioeconomic factors, gender, psychographic factors, and response to the components of the service system. We discuss these differences below. Socioeconomic factors—The vital socioeconomic demographics driving the Ecommerce growth in emerging economies, notably in Brazil, China, India, and Indonesia, is the emerging middle class. The consumers, who hail from once poor populations, are having fresh experiences with disposable income when they make purchases online.5 These consumers are millennials, technologically savvy, and show increasing behavior of consumerism.6 Another demographic dimension is the geographical location of some consumers. The lack of good retail infrastructure in the semi-urban areas is a strong motivator for consumers to take to online shopping.7 Gender—Consumption activities are dominated by men in the emerging economies compared to the dominant role played by women shoppers in the West (Dholakia et al. 2018). In India, two-thirds of the online shoppers are males. The gap is wider for high ticket items and key categories like electronics, which take up 75% of the E-commerce market. One of the reasons for this gender divide is the constraints faced by women when it comes to accessing capital and credit, access to devices, a skewed market which predominately creates services and content directed at men, and issues of online safety.8 Google’s gender equity study found that women do not have a predominant online presence due to issues related to access, privacy, content and community, and safety (Sambasivan et al. 2019). Psychographics—Shopping orientation is a consumer’s approach to the act of shopping (Gehrt et al. 2012). A study that sought to segment online shoppers in India found that consumers differed primarily by their orientation toward value, getting quality with convenience, recreational orientation, and reputation with convenience orientation (Gehrt et al., 2012). Based on the differences in orientation toward these factors, the research classified consumers into the following types: • Value singularity—These consumers are more motivated to buy by issues concerning value. They are older, have relatively less experience with the Internet, and value web security. 5 Buying Behaviours of Emerging Middle Classes. (2012). Retrieved October 19, 2019, from https:// insight.kellogg.northwestern.edu/article/buying_behaviours_of_emerging_middle_classes. 6 Internet Retailing in Asia Pacific | Market Research Report | Euromonitor. (n.d.). Retrieved October 19, 2019, from https://www.euromonitor.com/internet-retailing-in-asia-pacific/report. 7 Top 20 E-retailers | Indian Retailer. (n.d.). Retrieved October 19, 2019, from https://www.indian retailer.com/magazine/2012/august/Top-20-E-retailers.m58-1-1/. 8 Sachitanand, R. (2019). How women are sidelined in India’s e-commerce growth - The Economic Times. Retrieved October 19, 2019, from The Economic Times website: https://economictimes.indiatimes.com/industry/services/retail/how-women-are-sidelinedin-indias-e-commerce-growth/articleshow/70208077.cms?from=mdr.

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• Quality at any price segment—These consumers are young and tech-savvy and have a higher propensity to purchase. • Reputation/recreation segment—These consumers are young and well-educated. They shop online for known brands, for convenience and find shopping online to be a recreational experience. The latter two types were the predominant shoppers in terms of numbers and the amount spent. It is interesting to note that while the value singularity segment drove online shopping adoption in the U.S, it is the latter two segments that are driving shopping adoption in emerging economies like India (Gehrt et al. 2012). The insight from the latter two segments highlights the fact that online shopping is often experiential and hedonic in nature in an emerging economy. This makes the design of the online service experience to be more critical in emerging economies. Another study (Horváth and Adıgüzel 2018) showed that there are differences in motivations to engage in such hedonic consumption between emerging and developed economies. Gratification shopping (shopping to alleviate negative moods), idea shopping (shopping to stay updated with latest trends and innovations), and role-playing (pleasure derived from shopping for friends and relatives) are important motivations in developed countries. On the other hand, adventure-seeking (seeking adventure, excitement, and wishing to escape to another world) and role-playing are important motivating drivers to engage in hedonic consumption in emerging economies (Horváth and Adıgüzel 2018).

4.1 Differences in Response to the Components of the Service System Studies have looked at independent characteristics of the online service system and their influence on customer behavior in emerging and developed economies. In a study which compared the effect of website cues between Chinese and Canadian consumers, it was found that the impact of cues which were less task relevant (e.g., website ambiance) was stronger for Chinese compared to Canadians while the impact of high task-relevant cues (like price, terms of sale, and delivery) had relatively greater impact on Canadians (Mazaheri et al. 2011). It was also found that two emotions (which arose from using the website) impacted behavior differently across the cultures. The experience of pleasure that arose from the website was essential to Canadians in determining their behavior toward the site. In contrast, the experience of dominance (control over the website) was more important for the Chinese (Mazaheri et al. 2011). A reason for the impact of high task-relevant cues on Canadians is the nature of individualistic, short-term oriented, and high avoidance society that they live in compared to the more long-term oriented and low uncertainty avoidance culture of the Chinese (Mazaheri et al. 2011). Similar to the above findings, others have found that uncertainty avoidance and long-term orientation are cultural factors that affect attitude toward the site (Yoon 2009). Cultures that are high in long-term

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orientation such as China and cultures high on uncertainty avoidance like Brazil and India look for factors that can induce trust and help reduce uncertainty, respectively. Mental tangibility (ability to visualize a product mentally) has the greatest influence on North American customers’ attitudes, while physical tangibility (the ability of a product to be perceived by the senses) and specificity (customer’s ease in defining a particular good) have the greatest impact on Chinese customers. This can be explained by the fact that Chinese culture is a high context culture (Mazaheri et al. 2011). Trust and perceived benefits are important determinants for having a favorable attitude toward online shopping, while distrust and perceived risk lead to a negative attitude. Trust and perceived benefits are often formed from the perceived web quality (Al-Debei et al. 2015). Online retailers hence need to have strong cues on the website, which signal that the website is credible and trustworthy (Ahmed and Akhlaq 2015). For example, it has been found that despite perceiving usefulness and ease of use, there is a poor behavioral intention in India. This is possibly due to high-risk perceptions and fear of identity theft, concerns about product quality, delivery, and price (Nayyar and Gupta 2011). Seven factors have, in general, been found to be important in influencing the online shopping adoption decisions in an Emerging Market context. They are perceived risk, consumer resources, service quality, subjective norms, product variety, convenience, and website factors (Clemes et al. 2014). From a service system point of view, a service provider should focus on physical clues like website factors, mechanical clues like product variety, and humanistic clues like service quality and convenience to design a better online service experience in the emerging economy.

5 Discussion and Recommendations Based on the analysis of how e-commerce elements affect the online service experience, we realize that emerging markets offer a deviation in customer behavior compared to developed economies. Reinartz et al. (2011) identify that the customerlevel differences in emerging markets pose innovation challenges in Retailing. These include designing the good or service offerings for different income levels, creating variations in offerings to cater to the younger customers, and aligning the brand with the customer. Having a tiered pricing structure, offering value packs and services, and ensuring the product–store fit will address these challenges in the emerging economies (Reinartz et al. 2011). Further, firms need to use information related to socioeconomic, gender-related, psychographic factors, and differential response to the service system components when designing the customer experience. We give some recommendations below.

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5.1 Designing the Online Service Experience Based on Socioeconomic Factors Firms that cater to the emerging middle class, who are technologically savvy and have discerning tastes, are likely to do well. For example, Fabelio is an online furniture retailer from Indonesia, which teams up with the best designers from Indonesia to provide affordable and designer furniture for the working middle class in Indonesia. Fabelio’s vision is to cater to the frequently changing tastes of the Indonesian population in design and aesthetics. The growing middle class is increasingly demanding for modern and expensive looking furniture which online furniture brands are catering.9 In general, firms that offer aspirational and lifestyle products for the growing middle class are becoming increasingly popular with emerging market populations. Using functional and mechanical clues to manipulate the look and feel of the website and products to make them aspirational will improve the overall customer experience.

5.2 Designing the Online Service Experience Based on Gender Since men and women differ in the gratifications that they seek from shopping (Noble et al. 2006) and subsequent behavior, E-commerce firms should make efforts to customize their offerings based on gender. While men generally look for convenience, ease of use, and for detailed and accurate information (Smith and Whitlark 2001), women in emerging economies would be concerned with access, safety, privacy, and hedonic experiences in shopping. Firms like Amazon and Google are taking the initiative to attract more women online. Uber India integrated their app with the apps of Delhi and Kolkata police and with safety Pin, a mobile safety app to ensure that women feel safe when traveling in the Uber cars. The result of this initiative was that women reported feeling safer while traveling.11 Firms should focus more on designing functional clues for men and mechanical and humanistic clues for women.

5.3 Designing the Online Service Experience Based on Consumer Psychographics Online firms that create immersive experiences that transport the consumer away from their daily experiences will tend to be perceived more favorably in Emerging Economies. Firms are increasingly using virtual reality and augmented reality to 9 Indonesia

Furniture Market by Revenue is Expected to Reach USD 5,000 Million by 2021: Ken Research. (n.d.). Retrieved October 19, 2019, from https://www.prnewswire.com/in/news-releases/ indonesia-furniture-market-by-revenue-is-expected-to-reach-usd-5000-million-by-2021-ken-res earch-647864543.html.

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make the consumer’s online shopping experience more immersive. This involves the manipulation of functional and mechanical clues. To give an example, Indians have deep-rooted beliefs about buying jewelry. Jewelry purchases are often made at stores that the family has been purchasing from for generations. Purchases are made on special occasions and that too after interacting with the salesperson and having a touch and feel of the product. CaratLane, an online jewelry brand, broke through the traditional mindset by offering immersive shopping experiences online. Their app features a 3D mirror that incorporates facial recognition and 3D imaging, providing a life-like immersive experience in which consumers can discover new jewelry designs, try them, and then make a purchase without the hassle of having to keep wearing and removing the jewelry pieces like in a traditional store.10

5.4 Designing the Online Service Experience Using Functional, Mechanical, and Humanistic Clues To persuade consumers to purchase products and services online, Marketers can use the SOR model or the TAM model for designing the optimal customer experience. It needs to be kept in mind that consumers in emerging economies respond differently to the service design component. Managers can effect favorable attitudes toward their online stores by designing the website and user experience in a way that will make them feel in control, feel pleasure, and also develop trust toward the site. It is also essential for managers to increase the perceived usefulness and perceived ease of use to encourage consumers to shop online. For example, Double Eleven in China is one of the biggest online shopping festivals in the world. It has been found that perceived ease of use and perceived usefulness were the main drivers of impulse buying among Chinese during their Double Eleven festival (Khan et al. 2017).

6 Conclusion Managing service experiences online is becoming a critical factor for a firm’s success. In this chapter, we saw that three components of the service system, namely functional, mechanical, and humanistic clues, shape a customer’s online service experience. The service system design can further push the customer into a cognitive flow state, which offers a second-level experience. A good experience leads to higher satisfaction and intention to return. The chapter discussed two frameworks, namely SOR and TAM, which can incorporate the components of the service system and study the impact on customer experience. This was followed by a discussion on variations 10 CaratLane

Uses Virtual Reality for Better Consumer Experience - Do Big Stories - Tata Tele Business Services. (n.d.). Retrieved October 19, 2019, from https://www.tatateleservices.com/sto ries/caratlane-uses-virtual-reality-for-better-consumer-experience.

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in customer experiences in emerging and developing economies. The chapter finally discussed the implications of the findings for managers and provided recommendations for service system design in emerging economies. With the increase in penetration of technology, adoption of e-commerce, and consumption growth in emerging economies, firms should understand that creating unique service experiences online is critical for their success. As shopping becomes more technology-driven, and as the service economy is moving more toward an experience-centric focus, firms need to design experiences that are unique and offer a competitive advantage. Understanding the factors which shape the experiences can help firms to recognize when and how customers will have the best response to a product or service and can help them to suitably position themselves.

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Ding, D. X., Hu, P. J. H., Verma, R., & Wardell, D. G. (2010). The impact of service system design and flow experience on customer satisfaction in online financial services. Journal of Service Research, 13(1), 96–110. https://doi.org/10.1177/1094670509350674 Econsultancy. (2011). Reducing online customer struggle. https://docs.media.bitpipe.com/io_10x/ io_101973/item_460831/tealeaf-report_Econsultancy-Customer-Struggle-B.pdf. Eroglu, S. A., Machleit, K. A., & Davis, L. M. (2003). Empirical testing of a model of online store atmospherics and shopper responses. Psychology and Marketing, 20(2), 139–150. https://doi.org/ 10.1002/mar.10064 Fiore, A. M., & Jin, H. J. (2003). Influence of image interactivity on approach responses towards an online retailer. Internet Research, 13(1), 38–48. https://doi.org/10.1108/10662240310458369 Fiore, A. M., Jin, H. J., & Kim, J. (2005). For fun and profit: Hedonic value from image interactivity and responses toward an online store. Psychology & Marketing, 22(8), 669–694. Gehrt, K. C., Rajan, M. N., Shainesh, G., Czerwinski, D., & O’Brien, M. (2012). Emergence of online shopping in India: Shopping orientation segments. International Journal of Retail & Distribution Management, 40(10), 742–758. https://doi.org/10.1108/09590551211263164 Holzwarth, M., Janiszewski, C., & Neumann, M. M. (2006). The influence of avatars on online consumer shopping behavior. Journal of Marketing, 70(4), 19–36. https://doi.org/10.1509/jmkg. 70.4.19 Horváth, C., & Adıgüzel, F. (2018). Shopping enjoyment to the extreme: Hedonic shopping motivations and compulsive buying in developed and emerging markets. Journal of Business Research, 86, 300–310. https://doi.org/10.1016/j.jbusres.2017.07.013 Khan, M. K., Akram, U., Hui, P., Kaleem, M., Khan , S., Akram, Z., & Hayat , M. (2017). The plight of humanity: Online impulse shopping in China. Human Systems Management, 36, 73–90. https://doi.org/10.3233/HSM-171768 Koufaris, M. (2002). Applying the technology acceptance model and flow theory to online consumer behavior. Information Systems Research, 13(2), 205–223. https://doi.org/10.1287/isre. 13.2.205.83 Lemon, K. N., & Verhoef, P. C. (2016). Understanding customer experience throughout the customer journey. Journal of Marketing, 80(6), 69–96. https://doi.org/10.1509/jm.15.0420 Manganari, E. E., Siomkos, G. J., Rigopoulou, I. D., & Vrechopoulos, A. P. (2011). Virtual store layout effects on consumer behaviour: Applying an environmental psychology approach in the online travel industry. Internet Research, 21(3), 326–346. https://doi.org/10.1108/106622411111 39336 Mazaheri, E., Richard, M. O., & Laroche, M. (2011). Online consumer behavior: Comparing Canadian and Chinese website visitors. Journal of Business Research, 64(9), 958–965. https://doi.org/ 10.1016/j.jbusres.2010.11.018 Mehrabian, A., & Russell, J. (1974). An approach to environmental psychology. https://psycnet.apa. org/record/1974-22049-000. Nayyar, R., & Gupta, S. L. (2011). Determinants of internet buying behavior in India. Asian Journal of Business Research (1). Noble, S. M., Griffith, D. A., & Adjei, M. T. (2006). Drivers of local merchant loyalty: Understanding the influence of gender and shopping motives. Journal of Retailing, 82(3), 177–188. https://doi. org/10.1016/j.jretai.2006.05.002 Novak, T. P., Hoffman, D. L., & Yung, Y. F. (2000). Measuring the customer experience in online environments: A structural modeling approach. Marketing Science, 19(1), 22–42. https://doi.org/ 10.1287/mksc.19.1.22.15184 Parasuraman, A., Zeithaml, V. A., & Malhotra, A. (2005). E-S-QUAL a multiple-item scale for assessing electronic service quality. Journal of Service Research, 7(3), 213–233. https://doi.org/ 10.1177/1094670504271156 Pullman, M. E., & Gross, M. A. (2004). Ability of experience design elements to elicit emotions and loyalty behaviors. Decision Sciences, 35(3), 551–578. https://doi.org/10.1111/j.0011-7315. 2004.02611.x

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Reinartz, W., Dellaert, B., Krafft, M., Kumar, V., & Varadarajan, R. (2011). Retailing innovations in a globalizing retail market environment. Journal of Retailing, 87(SUPPL. 1), S53–S66. https:// doi.org/10.1016/j.jretai.2011.04.009 Sambasivan, N., Checkley, G., & Marable, T. (2019). Toward gender equity online: Research with the next billion users. https://ai.google/research/pubs/pub48054/. Smith, S. M., & Whitlark, D. B. (2001). Men and women online: What makes them click? Marketing Research, 13(2), 20. https://search.proquest.com/openview/5ca8c46262d6c028276e3 4aea41650d9/1?pq-origsite=gscholar&cbl=31079. Yoo, J., & Kim, M. (2014). The effects of online product presentation on consumer responses: A mental imagery perspective. Journal of Business Research, 67(11), 2464–2472. https://doi.org/ 10.1016/j.jbusres.2014.03.006 Yoon, C. (2009). The effects of national culture values on consumer acceptance of e-commerce: Online shoppers in China. Information and Management, 46(5), 294–301. https://www.scienc edirect.com/science/article/pii/S0378720609000603. Xin, D., Hu, P. J. H., Verma, R., & Wardell, D. G. (2010). The impact of service system design and flow experience on customer satisfaction in online financial services. Journal of Service Research, 13(1), 96–110.

Aishwarya Ramasundaram is an Assistant Professor in Marketing at the Indian Institute of Management, Kozhikode. She completed her PHD in Marketing from IIM Bangalore. Her primary research interests lie in studying the influence of aesthetics in online shopping behavior, service failure, and cross-cultural behavior.

Chapter 4

Paradigm of E-Commerce Services in Developed and Emerging Economies Hitesh Bajpai and Atanu Adhikari

1 Introduction E-commerce is globalization’s shot at equality (Henadi Al-Saleh 2020). To gain a strong foothold in the global multilateral trading system, E-commerce today is being hailed as a mega opportunity by developing markets (Problems and prospects of internet marketing. http://www.icommercecentral.com/open-access/problems-andprospects-of-internet-marketing-1-12.pdf). It has opened the world as a market to the local business and vice versa. The lines between local and global businesses are thinning every day. Though it is a glorified mega opportunity, 8 out of 10 players fail miserably in these markets. In this chapter, we will understand what a customer in a developing economy expects from E-commerce. Researchers define e-commerce as the electronic process by which individuals or organizations make a transaction, such as buy, sell, transfer and exchange products, services, and/or information (Turban et al. 2008). Right from 1981, when the term Emerging Markets was first coined by Antoine van Agtmael at IMF in Thailand, to date, there has been a lot of hype and uncertainty over this term. Nearly 90% of the world’s population lives in emerging and developing countries. Investors and businesses view this market as a risky but exciting opportunity. With increasing competition, stagnant growth rates, shrinking profit margins, and little scope of expansion in developed economies, it has become inevitable for a business to look at expanding in emerging markets. It’s now that businesses are moving from being known as “bigger in the west” to “bigger in the rest”. E-commerce is the next big thing for a developing economy. E-commerce has created a paradigm shift in the way business is conducted in emerging economies H. Bajpai (B) · A. Adhikari Indian Institute of Management Kozhikode, Kozhikode, Kerala, India e-mail: [email protected] A. Adhikari e-mail: [email protected] © Springer Nature Singapore Pte Ltd. 2020 A. Adhikari (ed.), Services Marketing Issues in Emerging Economies, https://doi.org/10.1007/978-981-15-8787-0_4

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like Brazil, Russia, India, and China. Not only the global juggernauts, but even local businesses are viewing this opportunity with a lot of interest. The rise of millennials, growing Internet penetration, an increase in the number of smartphone users, evergrowing bandwidths, industry growth rate, and digitalization are some amongst other factors that are fuelling E-commerce growth. Today, every business wants to be online.

2 E-Commerce and Emerging Markets Commerce today is resurrecting all around us. From transactions taking place inside four walls of a brick and mortar store, business today takes place from a handheld device. The rise of e-commerce has radically transformed the way the world does business at every imaginable level—from the smallest of small businesses taking their first hesitant step into the online marketplace to the cut and the thrust of global competition, where the biggest online players vie to dominate the market (www.site123.com/learn/how-e-commerce-has-changed-the-globalmarket). Several researchers so far have contributed to studying the evolution of ecommerce in emerging economies. However, these researchers have contributed to theory development without comparing or contrasting the same with developed countries. However, notwithstanding its theoretical contribution, these researches do not explicate the role of organizations, especially in the context of emerging economies that not only have a large cultural distance but also often have functional voids at various levels. As the share of the global economy by emerging countries is growing, it may be proposed that a significant part of e-commerce service will contribute to the development of emerging economy resulting in the proportionate increase in the global economy (Khanna and Palepu 2010). According to the Boston Consulting Group, around 3 billion consumers in emerging markets will be online by 2022 (Jain et al. 2018). The ratio of consumers online between developed and developing economies will be 1:3. Emerging markets are the new mega opportunities for eretailers and businesses, as markets in developed economies are getting saturated every day (Adhikari and Bhattacharya 2016). It is assumed in previous literature that knowledge is not equally and globally distributed like resources. While this assumption is justified in a brick and mortar service operation, such an assumption may not be true in the electronic commerce service market. In case of e-commerce services, resources are created both inside as well as outside the firm (Singh and Kundu 2002). Online shopping is one of the most popular online activities in an emerging market. Though the growth story of e-commerce in developed and developing economies is one to rhapsodize, today we are more concerned about where it is now and where is it heading? Making “bricks click” is an exciting opportunity for every retailer, but it comes with its own complications. With a device in hand, the entire shopping mall in pockets, and the world at the buyer’s fingertips, the consumer has a plethora of options and convenience to buy and receive on-demand. In a report published by

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Statista, in 2019, retail e-commerce sales worldwide amounted to 3.53 trillion US dollars and e-retail revenues are projected to grow to 6.54 trillion US dollars in 2022 (www.statista.com/statistics/379046/worldwide-retail-e-commerce-sales).

3 Evolution of E-Commerce For understanding what e-commerce today is and what shape it will take, let us refer to Moore’s Law. Moore’s Law states that we can expect the speed and capability of our computers to increase every couple of years, and we will pay less for them. Digitization of products and services started from brands making their presence on the web, by uploading their contact details and a brief introduction to a web-based yellow page environment. It then evolved to companies making their websites and uploading their product details. The consumer could check the details of the products and then contact the sales centre to purchase the product. E-commerce then progressed to consolidators where coupon-based web portals started offering discounts on products and the consumer could buy the coupon and avail the discount benefits from a particular brand. The beginning of the third millennium is the time when digitalization started booming at a record pace. With the Internet advancing the consumers who were more informed and had prodigious information at their disposal, their purchasing behaviour started changing; they were not only accessing information but were adding comments, feedbacks and creating a parallel knowledge base which was then influencing other customers. To win a mind share of today’s smart, digital-savvy buyer, a marketer should connect with buyers in an apt and meaningful way, understand their expectations, and should aim at building valuable and long-term relationships by consistently offering great experiences.

4 Customer’s Expectations—From E-Commerce There are several barriers to emerging markets to grow e-commerce activities, for instance, limited Internet connectivity, lack of efficient logistics, lack of skilled labours, stricter bureaucratic environment, and the absence of a fast legal environment (Alyoubi 2015). At the same time, emerging economies come with several positive benefits for e-commerce. For instance, cheap labour, abundance of manpower, very high demand for a product, affinity to international brands, etc. make e-commerce grow at a much higher rate in South America and the Asia Pacific (28%) than North America and Europe (13%). With the advancement of the Internet and digitalization, customer expectations have also evolved. Researchers state that there are no such things as service industries. There are only industries whose service components are greater or lesser than those of other industries. Everybody is in service (Kowalkowski and Witell 2020). With

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evolving lifestyles, increased spending capacity, and a dearth of products and services available at their disposal, today’s emerging market consumers are on the lookout for more than just utility/functionality. They expect quality experiences, consistency, and a brand connect (State of global customer service report 2017). Today’s customer, both in developed and emerging economies, is less loyal towards a product, price, or a brand, rather their loyalty tends to shift based on experience, service, and satisfaction. About 9 out of 10 businesses in a developed economy believe that the real competition today is in giving their consumers a better shopping experience. For instance, Microsoft mentions that about 96% of respondents say customer service plays a role in their choice of and loyalty to a brand (www.salesforce.com/research/ customer-expectations).

5 E-Commerce Customers in Developed Economy To understand what a business should do right in terms of winning the competition and gaining sustainable strategic advantage, let’s try and understand what a customer in a developing economy expects from a brand or an e-commerce player. (1) Shopping Convenience: Today’s customers in developed countries wants to try a product, check what others are saying about it, compare it with other options, and only then make a purchase online. We see that IKEA had implemented VR technology in which a customer could place the product in a home environment and test the look and feel of the product. Similarly, many optical brands allow users to upload their pictures, where they can try different frames and then make a buying decision. (2) Fast Delivery: Today’s buyer “wants it now”. On an average of 80%, online shoppers emphasize immediacy as a buying criterion. Research in the past have suggested that when it comes to delivery timelines, the customers in developed countries do not mind paying extra if there are no options available. Shoppers now want it free and want it fast. Amazon’s Prime program’s success is a classic example. Under the Amazon Prime program, its members receive multiple benefits including free deliveries, discounted expedited delivery, early/exclusive access to deals, free streaming of movies, TV shows and music, and more. Amazons founder Jeff Bezos wants Prime to be of such a good value that a customer would be irresponsible not to become a member. No wonder more than half of US shoppers are Prime members today. (3) Personalization: Shoppers in developed countries like in the US and Europe do not hesitate in sharing their information with businesses. They trade off their data to get a more personalized buying experience. The focus here is to expedite the shopping experience, get relevant product or service offerings only. According to Salesforce, a cloud-based software company, 84% customers want the business to treat them as individuals and not just a number. Seventy percent of the customers mentioned that to understand how they use the product is

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particularly important for businesses to win their business. Fifty-nine percent of customers in developed countries say that tailored engagement based on past interactions is particularly important to winning their business. Customers are 2.1 × more likely to view personalized offers as important versus unimportant (Xu and Cai 2004). Cross-Device, Seamless Buying Experience: Developed country shoppers do not shop within the four walls of their homes via a desktop or a laptop anymore. Today’s customer is active in all browsing environments, shopping on the go. If a shopper adds a product in thier shopping cart, or browses a product on mobile in the morning, while travelling to the office, he/she would be able to exactly start from there at a later time from their choice of device (laptop, desktop, virtual assistant, tablet, or mobile). Flexible Payment Options: Developed country shoppers today want a flexible payment option, be it pay on delivery, net banking, credit cards, EMI options, pay later options, pay via loyalty points, or even cryptocurrencies. Researchers in a developed economy found that e-commerce giants innovating in their payment options have seen great results. Amazon’s variety of payment options are classic examples of this. After all, for a business selling online, completing a payment should be the easiest part of their customer’s journey. Businesses should try to make it as straightforward and as fast as possible for a customer. Privacy and Data Protection: Shoppers in developed countries are not hesitant to share their details, but they expect the businesses with which they share their personal information to be very careful and discreet in handling their information. The customer expects the business not to share their details with anyone and use them only for making the customer’s shopping experience more convenient. About 60% of consumers even today are afraid that their data might get compromised. Immediate and Responsive Customer Care: Customers in developed countries want an immediate response to their queries or complaints. Shoppers want more channels at their disposal, to be able to connect with businesses. Besides chat, call now, write to us, and other features, today’s customer wants their queries to be handled via social media too. Incredible Experience: When it comes to experience, shoppers expect a seamless, effortless, time-saving, yet great shopping journey. A brand is not expected to do anything extraordinary every time but is perceived to keep the shopping experience of a customer simple, delightful, smooth, and effortless. Customers expect their shopping to be simple and effective. However, as mentioned above the customer expects to be valued. Stability and Consistency: Giving customers a great shopping experience and achieving customer delight with one transaction is not enough for any business. Today’s consumers in developed countries expect consistency across channels (web-based, app, or offline) with every touchpoint, every transaction, every time. The percentage of customers switching loyalty is extremely high if the customer does not receive the same experience or service in their subsequent purchases or visits.

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6 Hence Comes the Question—How to Win in Emerging Markets? E-commerce in emerging markets is about relationships and values. Raising consumer’s expectations, increased desire for buying experiences, affluence, growth of the Internet, greater bandwidth, easier access to information, etc. are opportunities in an emerging market which a business should identify and strategize in innovating sustainable business models that will guarantee their success. Let’s analyse what successful E-commerce companies in the emerging market have done right in managing customer expectations, and what a business should do to win over the competition.

6.1 Understanding Value For building a successful E-commerce model in an emerging market, a business first needs to understand, where is the “value”, not only for business but also for its customers. With a focus on customer value in the e-commerce context, researchers have defined the online customer value as the consumer’s overall assessment of the net benefits gained from shopping at a store through successfully obtaining quality products and shopping enjoyment (https://www.amazon.in/b?ie=UTF8& node=85933 1703). Amazon’s mission statement is “to be Earth’s most customer-centric company, where customers can find and discover anything they might want to buy online, and endeavours to offer its customers the lowest possible prices” (Batra and Ahtola 1991). Amazon creates value for its customers by leveraging technology and innovation, to offer its customers low prices, convenience, and a wide selection of merchandise. Flipkart, a leading online retailer in India, creates value by providing accessibility, convenience, price, and assortment.

6.2 Understanding the Customer’s Buying Cycle Emerging market companies often assume that a consumer takes buying decisions impulsively. While it may be true for low involvement products, researchers have found the contrary to most of the product and service categories. They opined that to build on a successful business in an emerging market, one needs to craft a customer’s journey map, clearly understanding their likes and dislikes, influencers, and other factors to devise the right solution which can get the customer excited to buy a product or service. To understand the emerging market shoppers’ buying cycle, we will be breaking the process into three parts: The pre-purchase stage, the service encounter or purchasing stage, and post-encounter or after purchase stage.

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Pre-Purchase Stage: The Pre-Purchase stage is the first step in the emerging market customer’s buying cycle. There are two basic reasons for consumers’ purchase and consumption of goods and services—fun and pleasure (hedonic dimension) and to accomplish a functional task (utilitarian dimension); these two benefits (hedonic and utilitarian) contribute to the overall makeup of the product but in varying degrees (Batra and Ahtola 1991; Blackwell et al. 2006). Blackwell et al. 2006 define consumer information search as “the motivated action of knowledge in memory or acquisition of information from the environment about the potential satisfiers” (Schiffman and Kanuk 1997). The pre-purchase begins with a problem or need recognition. Unlike developed markets, the aim of a marketer providing services in an emerging market is to lay more emphasis on ensuring that a consumer realizes a need for a product or recognizes a problem for which they need a solution. The primary focus is to make a customer realize that there is an unsatisfied or unmet need. If consumers don’t perceive a need or problem, it’s unlikely that they would move forward with considering a product purchase. In developed markets, it is majorly triggered internally (routine, basic needs) and in developing markets it is majorly triggered by external stimuli (advertisements). An external stimulus can also be the convenience of shopping. It should be the goal of an e-marketer in an emerging market to make the customer realize their unmet needs and provide a product or service which can fulfil these needs. In developing economies, the opportunities for a marketer at this stage are immense. Beardo, an Indian all men brand, is a classic example of how a brand made a website to build a community of beard growers, educated them, gained the loyalty, and then sold products. This can also be explained by the famous quote of Professor Theodore Levitt—“People don’t want to buy a quarter-inch drill. They want a quarterinch hole!” Once consumers understand that there is an unsatisfied need or demand, they then start searching for information to satisfy that need. Information search takes place very differently in developed and developing markets. In developed markets for buying utility products, consumers would not indulge in too much research and use their historical memory to order, whereas for buying a phone or any other electronic gadget a consumer would want to gain as much information as possible before making a decision. Schiffman and Kanuk (1997) mention that extended decisionmaking occurs when a consumer has no established criteria for evaluating either the specific product brand or a product within the product category (Bilgihan et al. 2015). In developing markets, a consumer would take due precautions while ordering the smallest items or while using a service for the first time. E-commerce players in developing markets should focus on providing as much information as possible about their products or services which will, in turn, help the customer in making a buying decision. A significant amount of potential revenue is lost globally due to poor online customer experiences, resulting in e-commerce not reaching its potential. (Bilgihan et al. 2015; Akalamkam and Mitra 2018). Consumers do not limit themselves to either offline or online channels, rather they obtain information from either source (Rangaswamy and Van Bruggen 2005). Though Google

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search engine still leads in the way a consumer searches for information, today’s techsavvy customer accesses and consumes information from everywhere, be it social media handles or video streaming websites, from ads on TV to asking virtual assistants. Hence, a business wanting to establish its foothold in the e-commerce segment in a developing market should focus on how a customer searches for a product and the criteria of evaluation before making a purchase. Shopping online is very convenient, still, finding the right product sometimes can be a cumbersome activity; hence, websites today use a lot of AI-powered virtual shopping assistants, known as shopbots, and actively use recommended product features. Amazon and Flipkart lay much emphasis on product cataloguing to facilitate smoother information search. A lot of emphasis is also given in personalizing the shopping experience for the customer where recommendations are based on individual and community searched products. Once a customer is able to find what he/she was looking for, it is not necessary that they will make a buying decision instantly. Consumers in emerging markets tend to compare the product or service chosen, with alternatives, and tend to spend more time in comparing alternatives than in developed economies. This is a very crucial phase where businesses lose maximum customers. Businesses should actively look at providing platforms within their app or website where a customer can compare alternatives. Wayfair, Ikea, and Amazon provide wonderful features on both their apps and websites where a consumer can compare alternatives, before making a decision. This feature allows the customer to check price, specifications, delivery timelines, and other features, all at a single place. Service encounter or purchasing stage: This is the stage in which the customer has chosen a product after comparing alternatives. Now is the time to convince the customer to buy. In an emerging market, it is highly possible that the customer has selected a product or service and has stored it in the shopping cart. Expansion in the arena of communication technology has vastly increased the opportunity for a customer to engage with brands via different interface technologies for different aspects of their interactions. (Rangaswamy and Van Bruggen 2005) (www.seoreseller.com/blog/shopping-cart-abandonerswhy-you-need-a-cross-platform-ecommerce-strategy). As per seoreseller.com, 40% of consumers use online shopping carts as storage, which they can access later on using different devices, and 19% of frequent shoppers always hop devices when purchasing online, while 42% of frequent shoppers do this occasionally (Hoffman et al. 1999). Hence, the marketer especially in an emerging market should focus on developing a holistic approach, blending their communications across platforms and devices for a seamless buying experience. This will enable the customer to take off right from the place they left which in turn will fasten the decision-making (Adhikari and Gill 2011). In an emerging market, if the customer is buying from a well-known brand, a business can make difference by giving additional offers, faster delivery options, extended warranties, and in case the customer is still having doubts an option should be given to contact customer service to help them make a buying decision. If the customer is

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a first-time shopper (which is largely the case in an emerging market), there is much more than a business will need to do over and above the points mentioned. At this moment, the business needs to establish trust. The most effective way for commercial Web providers to develop profitable exchange relationships with online customers is to earn their trust (Hoffman, Novak and Peralta) (www.salecycle.com/blog/strategies/which-ecommerce-payment-optionsdo-customers-want). At this point, a business needs to answer all the customers doubt such as authenticity of the store or app, concerns regarding the quality of the product or service, is my information safe, will I be able to track my orders, what if I need help, and what if I want to return the product. A majority of businesses emphasizes on the review feature; this helps the customers believe that they are not the only ones. The business can hereby instill confidence by giving social proofs, trust seals, affiliations, contact details, and others for helping the customer in making a buying decision. The next most important challenge in an emerging market towards completing the purchase is payments. Gone are the days when shopping online used to happen via a credit card only. Today’s buyer wants a variety of options. As per salecycle.com, 6% of shoppers abandon their cart as they have fewer payment options (www.klarna.com/knowledge/articles/why-alternative-paymentmethods-are-shaping-the-future-of-e-commerce). If a customer is unable to find an option that works for them, they will likely switch. Marketers, especially in an emerging market, must focus on providing as many payment options as possible. The choice of options widely varies based on demographics, geography, lifestyle, the device used for shopping, and other factors. Another important aspect here is the time taken at checkout. Not only the customer prefers their choice of paying but they want it fast. As per Klarna Knowledge, 55% of all online transactions are predicted to be made using alternative payment methods (Edelman and Singer 2015). Post-encounter or after purchase stage: When an emerging market consumer makes a purchase, it is not the end, but a different set of expectations begins as postpurchase behaviour. Study shows that around 40% of shoppers are more likely to visit the site or app where they have purchased from (Edelman and Singer 2015). As per Alex McEachern, the chance of repeat purchase of a customer with a business is 27% after their first purchase. The probability of subsequent purchase increases to 54% if a customer makes the first repeat purchase (Payne et al. 2017). Hence, a post-purchase strategy is an absolute priority for any e-commerce business in an emerging market. The time interval between purchases, till the time a product or service is delivered, is the time where the buyer is most receptive to communications from the brand. This is an opportunity which the business should capitalize on building loyalty. To gain buyers’ loyalty in an emerging market, a brand should focus a lot on customer service. Customer service is the most vital part of any online business today. The intersection of an effective omni-channel marketing and IMC strategic and tactical initiatives offers marketers an opportunity to engage their customers and to form profitable relationships (Payne, Peltier and Barger) (www.ups.com/media/ en/gb/ups_global_paper). Today’s customer handles multiple things at once, so one

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channel would not be apt for the customer to use in all the instances. For example, if the customer is at work, they would prefer to chat via Messenger or WhatsApp. In case the customer is driving, they would want to use their headset, or use chatbots if they want a query solved at wee hours. Any digital marketer should look at offering options to the buyer, and ensure quick response via all the mediums. 50% of customers are willing to help themselves, hence an e-commerce player should focus more on providing self-help options such as FAQ pages. A marketer should focus on being proactive in analysing the problem and in giving solutions via a timely update, email, text messages, etc. Returns, refunds, and exchange policy is another most important aspect for any online business, as customers in this market are more sceptic in comparison to developed economies. If a company makes returns and refunds simple, the probability that a buyer may shop again is very high. In an online business, dealing with returns and refunds is unavoidable. Businesses today should not shy away at this point. Rather they should devise their return policies to be flexible, easy, and convenient. A business should be very precise in writing their return policy and ensuring it’s easy to find on their portal or app. As per a survey done by UPS, 73% of shoppers said they would shop more with a retailer and 78% said they would recommend a retailer to a friend if the retailer had a hassle-free return process (Henadi Al-Saleh 2020). By providing comprehensive and exhaustive returns and exchanges policy, a business can instill confidence and gain loyalty.

7 Recommendations E-commerce is evolving in emerging economies to encompass a wide variety of services including hotel booking, air and train ticketing, leisure travel, entertainment, medical practitioners, and many more. Hence, similar to products, there is a digital market for services as well. However, like benefits, emerging markets suffer from several inhibiting factors namely risk adversity, safety of transaction, low quality, and reliability of service after the payment is made, etc. What works in the developed economy necessarily may not work in emerging countries. E-commerce in an emerging economy is still in its growing phase and so is the digital culture of its consumers. Businesses trying to make a mark in these markets need to come up with new technologies that reduce the risk of a purchase, increase the reliability of innovative products, offers, and services. This has also resulted in rising consumer’s expectations. There is no recipe for succeeding as such. Any business going digital should be focused on adding value for the consumer; rest will follow automatically. Consumers in emerging markets have to incur a cost to search and obtain information about the service features, quality, competing services, and price that the sellers offer. These costs include opportunity cost of time and effort spent in acquiring these information as well as cost incurred on Internet data, subscription, and collection of product from the nearest delivery point for a sub-urban and rural customer as many countrysides of emerging countries may not have adequate transportation system for

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the delivery of goods in a cost-effective way. Sellers must make sure that these costs are as less as possible for emerging market consumers to buy services online. Similar to buyers, sellers in emerging countries also face cost in identifying and locating appropriate buyers through advertising and sales call. Several Internet-based technologies lower seller’s costs. Local government needs to facilitate that Internet service providers and related industry players have access to such technology at an appropriate cost so that the same can be procured by service industry players at an affordable rate. Businesses should have a clear understanding of who its customers are, where they are, what they need, when they need it, why they need it, and how and where they need it. Businesses which integrate all their functions around the above statements to provide a seamless and incredible buying experience will win. Another thing the emerging market sellers need to ensure is that the online order fulfilment is done in a cost-effective manner. The last arm of the supply chain is extremely important in an emerging market. To overcome the challenges of the last arm of service delivery, companies and local government need to reduce service delivery cost, order fulfilment cost, and meet customer expectation of shorter delivery time including shorter delivery lead time. Customization also plays a major role in case of sub-urban and rural customers.

References Adhikari, A., & Bhattacharya, S. (2016). Appraisal of literature on customer experience in tourism sector: Review and framework. Current Issues in Tourism, 19(4), 296–321. Adhikari, A., & Gill, M. S. (2011). Impact of resocurces, capabilities and technology on market orientation of Indian B2B firms. Journal of Services Research, 11(2). Akalamkam, K., & Mitra, J. K. (2018). Consumer pre-purchase search in online shopping: Role of offline and online information sources. Alyoubi, A. A. (2015). E-commerce in developing countries and how to develop them during the introduction of modern systems. Batra, R., & Ahtola, O. T. (1991). Measuring the hedonic and utilitarian sources of consumer attitudes. Bilgihan, A., Kandampully, J., & Zhang, T. C. (2015). Towards a unified customer experience in online shopping environments. Blackwell, R. D., Miniard, P. W., & Engel, J. F. (2006). Consumer behaviour. Edelman, D. C., & Singer, M. (2015). Competing on customer journeys. Harvard Business Review, 93(11), 88–100. Henadi Al-Saleh. (2020). www.weforum.org/agenda/2020/01/e-commerce-sme-globalization-equ ality-women. Hoffman, D. L., Novak, T. P., & Peralta, M. (1999). Building Con Trust Online. Jain, N., Walters, J., Bharadwaj, A., Niavas, S., Azevedo, D., & Sanghi, K. (2018). Digital consumers, emerging markets, and the $4 Trillion future. Khanna, T., & Palepu, K. G. (2010). Winning in emerging markets: A road map for strategy and execution. Kowalkowski, C., & Witell, L. (2020). Service innovation. The routledge handbook of service research insights and ideas, Vol. 109. Lodha, S. (2020). Creating value for 2020 consumer: A start up’s guide to enhancing customer experience..

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McEachern, A. What is a Repeat Customer and Why are they Profitable. Payne, E. M., Peltier, J. W., & Barger, V. A. (2017). Omni-channel marketing, integrated marketing communications, and consumer engagement: A research agenda. Rangaswamy, A., & Van Bruggen, G. H. (2005). Opportunities and challenges in multichannel marketing: An introduction to the special issue. Schiffman, L., & Kanuk, L. L. (1997). Consumer behavior, 7th Edn. Pearson. Singh, N., & Kundu, S. (2002). Explaining the growth of e-commerce corporations (ECCs): An extension and application of the eclectic paradigm. State of global customer service report (2017). Microsoft. Turban, E., Leidner, D., McLean, E., & Wetherbe, J. (2008). Information technology for management. Wiley. Xu, Y., & Cai, S. (2004). A conceptual model of customer value in e-commerce. Problems and prospects of internet marketing. http://www.icommercecentral.com/open-access/pro blems-and-prospects-of-internet-marketing-1-12.pdf. https://www.amazon.in/b?ie=UTF8&node=8593317031. www.klarna.com/knowledge/articles/why-alternative-payment-methods-are-shaping-the-futureof-e-commerce. www.salecycle.com/blog/strategies/which-ecommerce-payment-options-do-customers-want. www.salesforce.com/research/customer-expectations. www.seoreseller.com/blog/shopping-cart-abandoners-why-you-need-a-cross-platform-ecomme rce-strategy. www.site123.com/learn/how-e-commerce-has-changed-the-global-market. www.statista.com/statistics/379046/worldwide-retail-e-commerce-sales. www.ups.com/media/en/gb/ups_global_paper.

Hitesh Bajpai is marketing professional and an entrepreneur with years of multifaceted experience in E-Commerce and Retail industry. He currently deals in sectors like software, manufacturing, e-commerce, consulting and security. He holds degrees from the University of Calcutta, Manipal University, University of Bangalore, and the Indian Institute of Management, Kozhikode. His research interest areas include category management, strategic planning, sourcing, assessing customer value, and creating brands. Atanu Adhikari is a Professor in the area of Marketing Management at IIM Kozhikode. His current research area includes consumer choice behaviour, experience product marketing, pricing, and applications of Bayesian econometrics in marketing research. He is actively involved in scholarly academic research work, which has been in many national and international peer-reviewed academic journals. Prof. Adhikari was affiliated as a doctoral fellow of Royal Statistical Society, Commonwealth Academic Fellow to London Business School, and was a Visiting Researcher at Syracuse University. He has also co-authored and edited books published by leading publishers, namely Springer, Sage, John Wiley, Cambridge Scholar Press, Gower Publication, and Cengage Learning. His research work has been selected and presented in several prestigious international conferences organized by Marketing Science, American Marketing Association, World Congress in Probability and Statistics, World Research Summit in Hospitality and Tourism and similar academic forums in the USA, UK, France, Germany, Italy, China, Australia, and Singapore.

Chapter 5

Service Issues Affecting Consumer Behaviour Towards E-commerce Purchases in India Pralok Gupta and Ayona Bhattacharjee

1 Introduction The emergence of e-commerce in both developed and developing countries is rapidly transforming market dynamics. While a market has been traditionally known as a meeting place for consumers and sellers, e-commerce has introduced the concept of virtual markets, enabling business transactions in virtual space without having a face to face interaction between consumers and sellers. The virtual aspect of ecommerce brings in issues related to consumer trust and confidence, with important implications for business strategies. The literature on e-commerce has mostly studied the supply side in the form of business models, best practices, pricing strategies, whereas relatively less has been explored on understanding the consumer side of e-commerce (Smith and Brynjolfsson 2001; Lim and Dubinsky 2005; Narwal and Kant 2014; Nisar and Prabhakar 2017; Wang et al. 2019 and others). While few studies have examined consumer welfare effects of e-commerce, arising out of gains from variety (Brynjolfsson et al. 2003), shopping convenience (Dolfen et al. 2019), price convergence (Cavallo 2018) or trade promotion (Freund and Weinhold 2004), other dimensions of consumer welfare such as consumer protection in e-commerce businesses has remained largely unexplored. Consumer empowerment and protection are integral components of any business process. Understanding this is essential for e-commerce businesses as the lack of consumer confidence can have differential effects on the growth of the sector in

P. Gupta Centre for WTO Studies, Indian Institute of Foreign Trade, New Delhi, India e-mail: [email protected] A. Bhattacharjee (B) International Management Institute, (IMI New Delhi), New Delhi, India e-mail: [email protected] © Springer Nature Singapore Pte Ltd. 2020 A. Adhikari (ed.), Services Marketing Issues in Emerging Economies, https://doi.org/10.1007/978-981-15-8787-0_5

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different economies.1 This is particularly relevant in the case of emerging economies where e-commerce penetration is relatively low compared to developed economies. Bourlier and Gomez (2016) in the Euromonitor International report highlight that the low level of trust associated with online shopping is a characteristic of markets that are relatively nascent in their e-commerce development. Vijay and Balaji (2009) argue that although online shopping has its own advantages, many still prefer to shop traditionally. Kacen et al. (2013) use a survey of 224 consumers from the Midwestern United States to find that in many cases, online stores are less preferable than traditional stores, due to complexities involved in exchange or refund policies or due to uncertainty about getting the right item. Governments across many geographies have enacted regulations to protect the consumers against misleading and fraudulent practices of online sellers and platforms and to instil consumer confidence in e-commerce. Against this backdrop, this chapter discusses the consumer protection issues in the context of an emerging economy like India and contrasts it with that in the United States (US) and the European Union (EU). The United Nations Conference on Trade and Development (UNCTAD) Business-to-Consumer E-commerce Index (2019), measuring an economy’s preparedness to support online shopping, ranks India at the 73rd position while the European nations hold the top ten positions and the US holds the 13th position.2 The low rank position for India is attributable to the factors common across emerging economies, such as less developed financial and logistical infrastructure or a large mass of potential consumers who are not Internet savvy and are thus reluctant to engage in online shopping. The rest of the chapter is structured as follows: Sect. 2 discusses the relevance of consumer protection issues for e-commerce companies. Section 3 highlights consumer protection regulations in developed countries, i.e. the EU and the US. Section 4 discusses the growth of e-commerce, challenges and consumer protection regulations in the emerging economy of India. Section 5 analyses the issue and concludes with policy recommendations.

2 Relevance of Consumer Protection in E-commerce The e-commerce market being significantly characterized by information asymmetry between consumers and sellers necessitates gaining consumer trust for the success of businesses. To facilitate the growth of e-commerce by retaining existing customers while attracting new ones, it is imperative to make them aware of their rights and 1 UNCTAD

states that “growing lack of trust among online shoppers threatens to slow growth.” Consumers International head of UNCTAD, Amanda Long states “a confident and trusting demand side is central to the success of not just e-commerce but actually the whole digital economy,” Source: https://unctad.org/en/pages/newsdetails.aspx?OriginalVersionID=1724, accessed on 19th March 2020. 2 Source: UNCTAD B2C E-Commerce Index 2019, available at https://unctad.org/en/Publications Library/tn_unctad_ict4d14_en.pdf, accessed on 18th March 2020.

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grievance redressal mechanisms. The UN Guidelines on Consumer Protection (2015) emphasises the need for fair, equitable treatment, disclosure, transparency, education and raising awareness for any e-commerce transaction. UNCTAD (2017) in its report pertaining to the protection of e-commerce consumers provided certain guidelines. These include improving consumer confidence by adopting transparent and effective policies and providing a level of protection which should not fall short of that provided in offline commerce.3 The latest data by the UNCTAD reports that out of the 125 countries with data on consumer protection legislation, 97 have adopted consumer protection legislation for e-commerce transactions. Around 63% of these countries are either developing or transition economies.4 Consumer protection for e-commerce transactions is gradually gaining ground in emerging nations. For instance, the new e-commerce law introduced in China in January 2019 fosters consumer protection by requiring the sellers to disclose accurate product/service information, provide greater monitoring of fraudulent practices and avoid engaging in misleading and deceptive practices. Consumer confidence can be built through regulations by governments, as highlighted in sections 3 and 4 for the EU, US and India, respectively.

3 Consumer Protection in e-Commerce: Experience of Developed Economies 3.1 The EU E-commerce Consumer Protection Rules5 The EU has recently drafted regulations to facilitate safe and hassle-free online shopping for its consumers. The revised version of these regulations will come into force in 2020 enabling the EU Member States to protect consumers online. The new rules will help consumers in a number of ways. First, they will be able to assess risks associated with their online shopping. They will get the information whether the seller on the online platform is a trader or a private individual. This distinction is important because the EU consumer protection rules apply only in the case of traders and not private individuals. Second, traders providing reviews of other consumers will need to show how they ensured that the reviews are of real consumers, not the fake ones. Third, faking price reductions will unlikely be a possibility for sellers as they are required to mention a reference price for each price reduction. The reference price

3 Source: Consumer protection in electronic commerce, by the UNCTAD (2017), available at https:// unctad.org/meetings/en/SessionalDocuments/cicplpd7_en.pdf, accessed on 18th March 2020. 4 Source: https://unctad.org/en/Pages/DTL/STI_and_ICTs/ICT4D-Legislation/eCom-ConsumerProtection-Laws.aspx, accessed on 10th November 2019. 5 Based on https://ec.europa.eu/info/sites/info/files/factsheet_new_deal_consumer_benefits_2019. pdf and https://ec.europa.eu/digital-single-market/en/new-eu-rules-e-commerce, accessed on 11th Nov 2019.

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will be the lowest price listed within a period of at least 30 days prior to announcing the price reduction. The new Directive will ensure that consumers are provided with the right to individual remedies, which means they have the right to end the contract, right to have a reduction in prices or getting compensated financially, if they are affected by unfair commercial practices, like misleading marketing. The enforcement authorities will be granted more powers to stop misleading marketing practices.

3.2 The US E-commerce Consumer Protection Rules6 In the US, the Federal Trade Commission (FTC) is responsible for protecting consumers and prohibiting unfair and deceptive practices in the marketplace. The FTC defines deceptive practices as the ones wherein a representation, omission or practice misleads or is likely to mislead consumers. The FTC has investigated new types of deceptive pricing schemes in the context of online transactions. One such case is where the pre-sale price is artificially inflated. The FTC has come out with a document which contains guidelines pertaining to clear and conspicuous disclosures in digital advertising. As a matter of principle, an advertisement must show the true characteristics of the product being advertised, must not mislead consumers, all claims need to be substantiated and disclaimers need to be clear and conspicuous. The responsibility of reviewing information considered for substantiating advertisement claims lies with the advertising agencies or website designers.

4 E-commerce in India 4.1 Growth of E-commerce in India The “Global retail e-commerce index”, developed by A.T. Kearney, ranks the attractiveness of the online retail market of different countries. While in 2015, India did not even feature in this ranking of the top 30 countries, the scenario changed thereafter. Online retail in India is estimated to experience a growth of 30% annually.7 It is expected that by 2034, India will become the second largest e-commerce market globally.8 Among the major economies in online sales, India reported the highest 6 Based

on UNCTAD (2017), ‘Consumer protection in electronic commerce’. https://www.atkearney.com/global-retail-development-index/2017, accessed on 15th September 2019. 8 Source: IBEF (Jan 2018), available at https://www.ibef.org/download/E-commerce-Report-Jan2018.pdf, accessed on 20th September 2019. 7 Source:

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CAGR during 2012–17.9 The e-commerce sector was worth US$ 38.5 billion in 2017, expected to reach US$ 100 billion by 2020 and USD 300 billion by 2030.10 E-commerce has already made its way into different Indian sectors such as travel, home durables, telecom, food, online rentals, and pharmacy. Electronics is currently the largest segment in e-commerce business in India, followed by apparels. The growth in this sector is attributable to a wide range of supply- and demand-side factors such as fast pace of technology adoption, rising smartphone penetration, the launch of 4G networks, improved mobile data services, increase in the number of Internet subscribers, innovative business models, alternative payment options and greater awareness among the consumers about various brands and products.

4.2 Challenges for E-commerce Consumers in India Despite rapid growth in e-commerce transactions, uncertainty in any online purchase prevails as consumers cannot physically examine the products prior to purchase (Saarijärvi et al. 2017). Lack of awareness about the right portals, sharing of sensitive personal data/information and modes of consumer redressal are common challenges currently confronting consumers in e-commerce. A mismatch between the expected and actual good or service purchased is likely to be reflected in consumer complaints or grievances.

In Percentage

20.00% 15.00% 10.00% 5.00% 2017-18

2016-17

2015-16

2014-15

2013-14

2012-13

0.00%

Fig. 1 Share of complaints registered against e-commerce at NCH in India. Source Compiled from National Consumer Helpline Annual Reports by the Ministry of Consumer Affairs, Food and Public Distribution (available at https://nationalconsumerhelpline.in/, accessed on 21st October 2019). All complaints received at NCH are divided as per respective sectors, including e-commerce

9 Source:

IBEF (July 2019), available at https://www.ibef.org/download/E-Commerce-July-2019. pdf, accessed on 28th September 2019. 10 Source: National report on e-commerce development in India by United Nations Industrial Development Organization (2017), available at https://www.unido.org/sites/default/ files/2017-10/WP_15_2017_.pdf, accessed on 12th September 2019.

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Other E-Commerce complaints & enquiries

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Deficiency in Services

60 50 40

Delivery of wrong /deffec ve product

30

Non-Delivery of Product

20 10

Paid amount not refunded

0 2012-13

2013-14

2015-16

2016-17

2017-18

Fig. 2 Frequently occurring problems in the Indian E-commerce sector, as registered at NCH in India. Source Compiled from National Consumer Helpline Annual Reports by the Ministry of Consumer Affairs, Food and Public Distribution (available at https://nationalconsumerhelpline.in/, accessed on 21st October 2019). Note The relevant data is unavailable for the year 2014–15. The common sources of complaints across the annual reports have been used to represent their changing shares. Sources of complaints, which were specific to only some of the annual reports, were combined under the “others” category. To maintain consistency across the reports, we have combined two sources of complaints, i.e. delivery of defective product and delivery of wrong product into one single source

Figure 1 shows that the share of complaints registered against e-commerce at National Consumer Helpline (NCH) in India has been rising over time. Over the last 2 years, e-commerce registered the highest share of grievances. There was a significant increase in the percentage of complaints from 5% in 2013–14 to 11% in 2014–15 and a total of 76,615 dockets were raised only for e-commerce in 2017– 18. Most of the complaints were for non-delivery of product/delivery of defective/wrong products, delay in delivery, amounts not refunded after cancellation, wrong promises, lack of after-sale services, etc.11 Retailers have thus considered the option of making the return processes as smooth as possible, to develop trust and confidence and encourage seamless subsequent purchases. Retailers’ online return policies are gaining increasing importance as marketing strategies for companies to compete for. Figure 2 shows that the share of complaints about service deficiency and refund amounts has been increasing over time in India. The share of complaints about nondelivery of products has been declining over time. The literature highlights consumer sensitivity to the speed of refund processes. Faster return processes have shown a correlation with consumer retention, increased purchase frequency and purchase amount (Griffis et al. 2012). Pei et al. (2014) report that the extent to which consumers are allowed to return items free of charge has a positive influence on consumers’ 11 Source:

Dipak K. Dash and John Sarkar (2017), Complaints against E-commerce Companies Top List at National Consumer Helpline, The Times of India, available at https://timesofindia.indiatimes.com/india/complaints-against-e-commerce-companies-top-listat-national-consumer-helpline/articleshow/58781723.cms.

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trust and thus their purchase intention. Therefore, an effective consumer protection mechanism is essential for the development and expansion of e-commerce.

4.3 The Indian E-commerce Consumer Protection Rules Ensuring basic rights for consumer welfare has been recognized by legislations globally. The UNCTAD Programme on e-commerce and law reform provided support to countries in Asia, Africa and Latin America so as to establish legal regimes to ensure trust in online transactions.12 Following the United Nations Guidelines on Consumer Protection (UNGCP), India enacted the Consumer Protection Act (1986) with an aim to protect consumer interests. The objective of the act was to identify consumer rights and provide cost-effective redressal. However, this Act was silent on consumer protection for online transactions. It is only recently that a similar enactment is being deemed necessary for e-commerce in India. The Department of Consumer Affairs in India proposes to protect consumer interests engaged in e-commerce activities through the new Consumer Protection Act (2019). It states that any e-commerce entity shall accept the return of goods if not delivered as per the stated delivery schedule or the delivery is of defective, wrong or spurious products, which do not match the features advertised. It further proposes that payments towards accepted refund requests of the consumers should be done within a maximum period of 14 days. The e-commerce entity is supposed to display terms of a contract with sellers in the context of delivery or shipment, exchange, return, refund, warranty or guarantee, mode of payments, grievance redressal mechanism, etc. All these steps are likely to help consumers make informed decisions about online purchases. The new Act proposes measures while tightening the existing rules to safeguard consumer rights. It proposes to introduce Central Consumer Protection Authority (CCPA), as a central regulator, impose strict penalties for misleading advertisements and redressal of complaints related to defective goods and service deficiencies for online purchases. It outlines a framework for e-commerce and electronic service providers. The Act permits consumers to file their complaints with the court, irrespective of their location. The Act is expected to usher in a new direction for consumer protection as well as growth in the Indian e-commerce sector. In addition to this new Act, the Ministry of Consumer Affairs has established “Online Consumer Mediation Centre” (OCMC) at National Law School

12 Source: Consumer protection in electronic commerce, a note by the UNCTAD secretariat. Available at: https://unctad.org/meetings/en/SessionalDocuments/cicplpd7_en.pdf, accessed on 20th March 2020.

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of India University in 2016. The objective is to cater to the e-consumers and ecommerce companies.13 The Legal Metrology department also brought out the Packaged Commodities Amendment Rules, 2017, to prevent the prevalence of various malpractices and corresponding complaints, highlighted in the previous section.

5 Discussion and Recommendations The previous section highlighted that though e-commerce is growing at an exponential rate in India, the complaints are also increasing over the years. It could be noted that unlike developed countries where awareness of consumer rights is high among consumers and they tend to sue businesses for any wrongdoing in online transactions, such awareness is low in India. Moreover, the cost and time of litigation in case of violation of consumer rights may deter many consumers in India from filing complaints pertaining to online transactions. Therefore, apart from government regulations, the e-commerce businesses need to be proactive in taking consumer welfare initiatives and building consumer confidence. Developed countries experience shows that industry self-regulations could prove beneficial for gaining consumer confidence. Binding and Purnhagen (2011) highlighted that the EU empowers private consumer organizations to supervise the market and encourages the industry to self-regulate or co-regulate e-commerce by providing appropriate incentives. E-commerce companies in India and other emerging economies can also have self-regulations to build consumer confidence. Such initiatives will be important in emerging economies wherein a large proportion of the population is still reluctant to engage in online shopping. The self-regulatory steps include strict quality checks for online delivery, faster refunds in case of returned products, easier exchange policies and consumer friendly redressal mechanisms. These self-regulations can create a bandwagon effect in the entire e-commerce ecosystem thereby increasing not only the sales of e-commerce companies having these self-regulations but also the size of overall e-commerce sector in these economies. It is worth mentioning that as in the case of developed countries, several online platforms in India too have taken steps to enhance consumer trust. For instance, two major e-commerce players in India, Flipkart and Amazon, provide return and exchange policies for most of the products sold through their platforms. The exchange and return windows vary from 1 week to 1 month in many cases. Similarly, Myntra, a leading online platform for apparels and fashion in India, provides a 30-day exchange window for its items. These platforms also provide user ratings and reviews for various products as well as for their on-time delivery by sellers. According to a Nielsen (2012) survey report conducted in India, online consumer reviews were the second most trusted form of advertising, after recommendations from family and friends. However, such reviews may be inflated as some companies induce their 13 Source:

2019.

https://nationalconsumerhelpline.in/Annual_Report_2017-18.pdf, accessed on 21st Oct

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customers to give good reviews by offering freebies such as extra free service or extra discount for their next purchase. These kinds of practices may ultimately result in breaking consumer trust and non-reliance of future customers on such ratings and reviews given by existing customers. Therefore, the challenge confronting the government today is to strike a balance between effectively protecting the rights of the consumers and the obligations of e-commerce businesses while ensuring that the regulations do not become burdensome for the e-commerce firms to comply with. Acknowledgements We do hereby acknowledge the support of Mr. Aditya Bhadra Ray, B.A. LL.B. 2017 batch, student of O.P. Jindal Global Law School for providing research assistance for some of the sub-sections in the chapter.

References Binding, J., & Purnhagen, K. (2011). Regulations on E-commerce consumer protection rules in China and Europe compared—Same same but different. Journal of Intellectual Property, Information Technology and E-Commerce Law, 2, 186. Bourlier, A., & Gomez, G. (2016). Strategies for expanding into emerging markets with E-commerce. Euromonitor International. Recovered from https://blog.Euromonitor.com/2016/10/strategiesfor-expansion-emerging-markets-using-e-commerce.html. Brynjolfsson, E., Hu, Y., & Smith, M. D. (2003). Consumer surplus in the digital economy: Estimating the value of increased product variety at online booksellers. Management Science, 49(11), 1580–1596. Cavallo, A. (2018). More Amazon effects: Online competition and pricing behaviors (No. w25138). National Bureau of Economic Research. Dolfen, P., Einav, L., Klenow, P. J., Klopack, B., Levin, J. D., Levin, L., & Best, W. (2019). Assessing the gains from E-commerce. NBER Working Paper 25610 Freund, C. L., & Weinhold, D. (2004). The effect of the Internet on international trade. Journal of International Economics, 62, 171–189. Griffis, S. E., Rao, S., Goldsby, T. J., & Niranjan, T. T. (2012). The customer consequences of returns in online retailing: An empirical analysis. Journal of Operations Management, 30(4), 282–294. Kacen, J. J., Hess, J. D., & Chiang, W. Y. K. (2013). Bricks or clicks? Consumer attitudes toward traditional stores and online stores. Global Economics and Management Review, 18(1), 12–21. Lim, H., & Dubinsky, A. J. (2005). The theory of planned behavior in e-commerce: Making a case for interdependencies between salient beliefs. Psychology & Marketing, 22(10), 833–855. Narwal, M., & Kant, R. (2014). Role of e-commerce in consumer decision making. International Journal of Research in Business Management, 2, 77–88. Nielsen. (2012). In India recommendations and online consumer reviews most trusted form of advertising. Retrieved November 14, 2019 from https://www.nielsen.com/in/en/press-releases/ 2012/in-india-recommendations-and-online-consumer-reviews-most-truste/. Nisar, T. M., & Prabhakar, G. (2017). What factors determine e-satisfaction and consumer spending in e-commerce retailing? Journal of Retailing and Consumer Services, 39, 135–144. Pei, Z., Paswan, A., & Yan, R. (2014). E-tailer’s return policy, consumer’s perception of return policy fairness and purchase intention. Journal of Retailing and Consumer Services, 21(3), 249–257. Saarijärvi, H., Sutinen, U. M., & Harris, L. C. (2017). Uncovering consumers’ returning behaviour: A study of fashion e-commerce. The International Review of Retail, Distribution and Consumer Research, 27(3), 284–299.

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Smith, M. D., & Brynjolfsson, E. (2001). Consumer decision-making at an Internet shopbot: Brand still matters. The Journal of Industrial Economics, 49(4), 541–558. UNCTAD. (2017). Consumer protection in electronic commerce. https://unctad.org/meetings/en/ SessionalDocuments/cicplpd7_en.pdf. Vijay, S. T., & Balaji, M. S. (2009). Online shopping in India: Findings from a consumer research marketing mastermind. India: ICFAI University Press. Retrieved April 7, 2016, from https://pra modkuppi.blogspot.in/2014/02/online-shopping-in-india-findingsfrom.html. Wang, W. M., Wang, J. W., Barenji, A. V., & Tsui, E. (2019). Modeling of individual customer delivery satisfaction: An AutoML and multi-agent system approach. Industrial Management & Data Systems, 119(4), 840–866.

Pralok Gupta is working as an Associate Professor (Services and Investment) at the Centre for WTO Studies, Indian Institute of Foreign Trade, New Delhi. Dr. Gupta has a Ph.D. degree in Economics and Social Sciences from IIM Bangalore. He has been a visiting and full-time faculty member at various Indian institutions, including the Indo-German Chamber of Commerce. Dr. Gupta has been appointed as member of the Task Force on Services Sector Exports, Ministry of Commerce, Government of India; Member (Sectoral Expert) of the Inter-Ministerial Sub-Group on Data in Trade in Services, Ministry of Commerce, Government of India; and member of the Technical Group on Data in Trade in Services under the chairmanship of the Director General of Commercial Intelligence and Statistics. He has been associated with various consultancy and research projects for corporate bodies, the government and international and multilateral institutions, such as the OECD, the British High Commission, UKIERI, European University Institute, South African Institute of International Affairs, etc. His research interests include economics of services trade, FDI in services, regulatory environment and trade policies, WTO and related Issues, trade and environment concerns, and international migration. Ayona Bhattacharjee is an Assistant Professor of Economics at IMI New Delhi. Prior to joining IMI, she was an Assistant Professor at O.P Jindal Global University. She holds a doctoral degree in Economics and Social Sciences from Indian Institute of Management Bangalore (IIMB). She has published her work in top-tier journals, book chapters and news dailies. She has also presented her work at several national and international conferences and workshops. Her research interests include topics related to trade in services, health economics and economic growth. Prior to her academic career, she worked with Data Analytics firms for three years.

Chapter 6

Direct Marketing Issues in Emerging Markets—Review and Proposition Mahuya Adhikary and Atanu Adhikari

1 Introduction The customer acceptance of direct marketing can be strong enough that a manufacturer or a retailer would adopt it as a primary mode of marketing instrument to its customers. Here, direct marketing is used for strategic communication purposes even though it is inefficient for mass media and ATL communication, surprisingly, it can profit a manufacturer or a retailer even when the competition is high. Direct marketing, which indirectly increases the flow of profits through the retail channel, helps the manufacturer improve overall profitability by reducing the cost of mass communication, a part of which is often wasted. While operated by retailers, the direct one may be a useful communication strategy for emerging market consumers. This combination of the retailer’s pull and push can benefit the manufacturer as well (Adhikari and Roy 2017). Direct marketing includes one of the marketing and promotion strategies that rely on individual distribution directly in the sales field to potential customers without any intermediaries. It has emerged as a key promotion tool in the field of the promotion mix. Direct communication occurs when an organization and its customers come into direct contact with each other to affect a transaction, either sale or purchase, instead of using intermediaries. To maintain the customers by understanding their behaviour, companies attempt direct marketing to deliver products and services by using an existing promotion mix strategy. It involves the interaction between the past, present, and existing potential customers by utilizing multimedia channels of communication to assess the campaign effects on customers. The delivery systems M. Adhikary (B) Budge Institute of Technology, Kolkata, India e-mail: [email protected] A. Adhikari Indian Institute of Management Kozhikode, Kozhikode, Kerala, India e-mail: [email protected] © Springer Nature Singapore Pte Ltd. 2020 A. Adhikari (ed.), Services Marketing Issues in Emerging Economies, https://doi.org/10.1007/978-981-15-8787-0_6

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used are telephone, mail, internet, and texting where the seller can directly reach to the consumer. Direct marketing facilitates an important role and communication in the promotion process of service-related products like banking, insurance, tourism, hospitality, etc. It helps to amplify sales by raising the contour of the business, through targeted promotional advertising campaigns and strategies (Chandrasekhar et al. 2017). This study includes the various characteristic features of direct marketing for which it is highly used both in developed and emerging markets. There are development of the middle and upper classes in emerging countries, like India, Brazil, and China. These countries have attractive customer sectors for both international and domestic firms. The growing middle class having considerable buying capacity has gradually developed in an enormous populated emerging market in India, China, and Brazil. They set a recent tendency in customers’ inclination for comfort materials and generate a requirement for commodities and services in the emerging markets. Some researchers have investigated a new product adoption strategy by the low-income consumers in emerging markets. The impacts of direct marketing communication have greatly influenced the emerging markets of India, China, and Brazil (Arunachalam et al. 2019).

2 Effects of Direct Marketing Prior research of various researchers (Wulf et al. 2001; Iyer et al. 2005) and modern tendency in the trade and commerce of developed countries having focused on the intensity of direct marketing are considered in this study. Schweidel and Knox (2013) and Prins and Verhoef (2007) defined the intensity of direct marketing as the number of consumer-generated communications mailed to existing customers directly to improve product awareness and also to raise the purchase rate of recurrence. Some studies in the B2B area in emerging countries concentrated on direct marketing communication and investments in direct marketing without the exiting original ethics (Kumar et al. 2011). A few researches determined the effect of direct contact methods, like email or direct mail in case of developing countries (Venkatesan et al. 2007). Retailers in emerging countries introduce direct marketing techniques by using television, radio, or print media as marketing communication tools for their communication portfolio to attain existing customers. The efficiency of these various mediums to promote sales against returns is different (Montgomery and Silk 1972; Dertouzos and Garber 2006). Customer-modified communications focused on a definite segment of consumers to improve the success of direct marketing used in favour of traders (Iyer et al. 2005). A retailer incorporates promotions or coupons packed with an advertising message for direct marketing. Venkatesan and Farris (2012) found that customer-tailored direct marketing increases sales through customized coupons at a grocery store more than the sales occurred by offer redemption. It helps to understand the reasons

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for increasing direct marketing campaigns by retailers and shifting of individual consumers from mass advertising to direct marketing offers (Kesmodel 2008; Steel 2008). Different marketing communications with competitive messages may be misplaced in emerging markets; recent research showed that customized direct marketing has a significant effect on retail returns than various redemption offers. The broad messages delivered to the customers in emerging economies through television or radio usually captured market share. Direct marketing communications are often delivered in emerging markets to tempt people to make unplanned purchases thereby increasing profits from the customers by increasing the quantity and frequency of buying and also brand image. Hence, it can be argued that direct marketing is very influential in generating retail revenue in emerging markets. The service performance and the capital invested in various advertising promotions and through direct marketing have a larger impact on financial revenue. Thus, we can propose the following. Proposition 1a Direct marketing supply channel and advertising constitute a significant positive effect on a company’s financial performance. Proposition 1b Direct marketing communication has a significant positive effect on a company’s financial performance in an emerging market. Proposition 2 Direct marketing supply channel and direct marketing communication have a significant positive interaction effect on a company’s financial performance in an emerging market. Proposition 3 Direct marketing has a significant positive effect on the purchase intention of emerging market consumers. We now investigate the effect of direct marketing communication distributed to the customer who has already enjoyed the service performance of the retailer. These customers are known as existing customers in emerging countries. Researchers suggested two types of marketing communications: direct marketing and mass marketing. The direct marketing focused on existing customers while the mass marketing communications like ATL (above the line) communication targeted both recent and existing customers at the time of a new service adoption (Prins and Verhoef 2007; Bajpai and Adhikari 2018). Direct marketing communications directly influence the existing customer’s purchasing behaviour by giving eye-catching offers which are mainly business oriented (Rust and Verhoef 2005). Verhoef (2003) found that customer share can be enhanced by direct marketing messages. Venkatesan and Kumar (2004) observed that the sensible quantity of direct marketing communications has initial positive effects on purchase frequency in emerging countries. The same communication has a negative effect if it is delivered in unrestricted numbers. Verhoef et al. (2002) reported that direct marketing communication has positive effects on existing customers at the time of cross-selling.

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All these researches suggest that in emerging countries, direct marketing communication considers the behaviour of the existing customers in introducing a new product or service. The behaviour of the existing customer has a direct impact on the new product or service adoption. In emerging countries, the awareness of direct marketing communication is missing. Some researchers stated that the value of existing customers can be raised by brand advertising (Ambler et al. 2004). According to some leading retailers like Hilton, Amazon, and Nordstrom, when the retailers propose outstanding service, the purchase decision of the customer is governed by the previous experiences based on perceptions; it results in an amplified share of money for the retailer. A consumer’s prior experience contains greater information than direct marketing messages. Prior experience of customers has a significant impact on retail businesses (Vakratsas and Ambler 1999). In developing countries when retailers offer special discounts or coupons to existing customers, it acts as a motivation to them due to their prior experience and they become more loyal to the retailer and purchase intensity increases. But due to the lack of prior experience, new clients are not attracted to the direct marketing campaign of the retailer. When new and existing customers are studied separately in emerging markets, they will exhibit different responses to direct marketing services in the short and long run. Very few studies are available considering the possible differences between new and existing customer perceptions about direct marketing communication. An extremely selective and precise mailing decides the success of direct mailing communication efforts to improve the response rates of the customers and control costs. Thus, we can propose the following. Proposition 4 Direct marketing communication influences the existing customer’s buying behaviour in emerging countries while that may not significantly influence the buying behaviour of new customers.

2.1 Ideosyncratic Customer Behaviour In both developed and developing countries, the direct marketing services are greatly influenced by individual consumer characteristics. New product adoption studies done in the context of developed countries consider various innovation characteristics like risk, relative advantage, ease of use, difficulty, and various individual features, like creativity, demographics, or originality (e.g. Arts et al. 2011). Bolton et al. (2004) focused on cross-selling, facility usage, and customer retention depending on individual specific customer behaviour. Some studies also considered customeroriented direct marketing interventions (Venkatesan and Kumar 2004). It is found that loyal customers are receptive to relation-oriented systems and less loyal customers are concerned about the short-term rewards (Rust and Verhoef 2005). Steenkamp and Gielens (2003) showed that the rate of adoption among individual consumers is increased by mass advertising. They studied other actions like promotions which have

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a significant effect on individual trials for consumer packaged commodities. Perceptions are the subjective measures between the offer and the consumer’s expectations (Steenkamp 1990). Thus, if the message delivered by an organization was perceived by the customer as important and recognized the satisfaction of their needs, they strongly reacted to that particular direct communication messages (Katz et al. 1973). In emerging countries, direct marketing communications have a significant determining role in customers’ purchase behaviours. The comparative value of direct marketing communications differs for individual customers according to customers’ choice and interests. In the case of emerging markets, the comparative effects of direct marketing communication on each consumer’s procurement behaviour should be discriminated before providing messages to each customer. It will be more relevant to each customer (Sinha and Adhikari 2017). Some researchers focused on the variation of individual-oriented consumer purchase behaviour by observing customer purchase profits to identify the impact of direct marketing communications like direct mailings or e-mails on customer behavioural outcomes in various financial and social activities (Palmatier et al. 2006). Palmatier (2008) also indicated that those behavioural characteristics are not similarly imperative to all consumers. Thus, from the above literature, the following can be proposed: Proposition 5 Individual-oriented direct marketing communications have significant positive effects on the customer’s purchase behaviour in both emerging and developed markets.

2.2 Service Delivery Channel We identify the effect of direct marketing on the service delivery channels in both developed and developing nations. Chiang et al. (2003) examined that profits rise due to direct sales through the retail channel and as the demand in the retail channel improves, the overall profitability of the manufacturer also increases. Arya et al. (2007) found that both suppliers and retailers get an advantage from direct marketing by introducing lower wholesale prices and stretching downstream contests. It is showed that suppliers invade competitive supply chain channels for mainly FMCG products and food products. Retailers are increasingly using various service distribution channels to create contact with consumers (Li et al. 2015). For example, in developed countries like the US, Redbox introduced an instant online channel to acquire and hire movies to any competent gadget for existing and new customers. Sears, Walmart, REI, and several retailers recommend clients to select online orders for home delivery or delivering at a preferred place. Some researchers recommended that the firm could be financially benefitted by introducing new service delivery channels (Geyskens et al. 2002). Chung and Rust (2006) investigate the most effective marketing communication and service performance from different channels.

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In emerging markets, service delivery channels facilitate the system that shapes the influence of direct marketing and service performance on retail profits. When the perceptions of the quality design of the service delivery channels are high, introducing direct marketing service performance gets a positive effect on retail transactions. When direct marketing increases from low to high, service performance declines, if the design of the service quality perceptions is low. LIC of India used a direct marketing channel in August 2009 in 6 units. This channel brought a different approach in culture to the advertising of life insurance products. Companies doing business in emerging markets like Latin America, India, China, Chillies, etc. need to deal with the unique characteristics of every market. They should categorize the essential factors that compel the channel design/selection process and media of direct marketing communication. To access rural communities, various factors are there that influence the distribution channels and techniques used by the companies. These factors are transportation infrastructure, low literacy rate, low per capita income, difficulty in distribution, seasonal demand, service and financial requirements, etc. Companies should take the decision if they should offer products in rural communities or not by using direct marketing or by introducing wholesalers to serve customers. Companies should understand the buying behaviour of the customers and also realize how they use the service channels and react to direct marketing to decide the most effective way of serving the markets. Thus, it can be proposed as follows. Proposition 6 The quality design perceptions in direct service distribution channels in emerging countries improve the impact of service performance and direct marketing intensity on retail revenue.

2.3 Time/effort Cost Perceptions Retailers rely on various tools including pricing, service performance, direct marketing communications, mass communication, etc. Due to inadequate budgets of the customer, retail sales may not rise through direct marketing. Thus, increasing marketing investment to existing customers will sometimes attain declining profits (Freimer and Horsky 2012; Simon and Arndt 1980). Prins and Verhoef (2007) found that service advertising is negatively related to direct marketing communications when the time length is measured by a customer to adopt a new product or service. Steenkamp and Gielens (2003) incorporated a variation of advertising and promotions with time to adopt new products in consumer packaged goods. Baker et al. (2002) examined the customers’ sensitivity about the cost of time and effort they spent in shopping through a specific channel, and noticed that their perceptions influence negatively their behavioural purpose. Researchers namely Zeithaml and Parasuraman (2004) investigated whether direct marketing communication effect profitability and service quality in short term. They suggested that several other

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features influence the immediate financial benefits and it is not easy to segregate the partial effect of service performance. However, they also suggested that if the data is observed longitudinally over a longer period of time, a significant benefit may be observed. According to Zeithaml et al. (2006), managers would be able to make informed judgement in a minute and timely manner through efficient and effective service performance. Büttner and Göritz (2008) revealed that direct marketing communication is more advantageous to retailers. Rust et al. (2004a, p. 78) found that the purchase behaviour of various segments of customers is influenced by a coordinated marketing strategy over time and it affects the firm’s revenue stream. Google exercises FSC-certified paper and continues messages to its very few potential clients and only sends relevant information. It facilitates Google to not only support the company efficiently but also convey the messages to new clients about the services it presents for its users. Dawar & Chattopadhyay identified three major characteristics like low per capita income, inadequate infrastructural facility, and the exclusive business produced by the replacement of labour for capital in emerging markets. The direct marketing communication and service performance over time reduced the effectiveness of each other in the emerging markets and the interaction between the two will be negative. There is a negative interaction between service performance and direct marketing over time; service perceptions diminish this effect of these two on retail transactions. Direct marketing communication is dependent on time/effort cost perceptions of service performance in developing countries. If time/effort cost perceptions of service performance are high and service performance increases, it is observed that direct marketing communication has a strong and significant positive effect on retail sales. But if service performance increases, direct marketing communications have a lower but significant positive influence on retail profit though service time/effort cost perceptions are low. Thus, it can be proposed as follows. Proposition 7 In service delivery channels in an emerging market, time/effort cost perceptions increase the effect of direct marketing intensity on retail revenue.

2.4 New Product or Service Adoption The company applies direct mailing communication to promote many of its new services. It is observed in both developing and developed countries that direct marketing has a positive impact on new service or product adoption at a company level. Bolton et al. (2004) found that advertising and mass marketing are closely associated, but the effect of the advertising data remains inadequate. Crosby et al. (1990) found that B2B firms utilize direct communications with their customers frequently. Risselada et al. (2014) examined the effect of direct marketing on highly technical products. They showed that it positively influences consumer adoption of these products. Freimer and Horsky (2012) intensified the influence of direct marketing communication on existing customers by increasing the investment in direct marketing

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which attains declining returns. Google introduces Google Ad Words coupons or informations for their clients to promote business advertises through direct mailings. At the time of adoption of new services, direct marketing communication has an impact on existing customers in emerging markets. Companies pay attention to the behaviour of existing customers through direct marketing when introducing new services or products as it has a direct impact on sales. This might be relevant for the retention of customers and cross-buying, but consciousness should be developed between existing customers for newly introduced services. At the same time, information about the new service or product should also be exchanged with existing customers. Kamakura et al. (2002) argued service performance as a significant factor to earn companies financial returns on service profit chain. Another important marketing approach to disseminate the modernization in the market is advertising (e.g. Bass et al. 1994; Kalish 1985). Advertising can create consciousness, familiarity, and information about the new product or service between both existing and new customers. It can also update the existing and prospective adopters about the efficiency, advantages, and effectiveness of the new product or services, which may increase acceptance. Thus, it can be proposed as follows. Proposition 8 Direct marketing communication shortens customers’ time to adoption in emerging markets.

2.5 Effect of Advertising in Direct Marketing Advertising plays an important role in attracting new customers. Mass advertising also affects existing customers which promotes new services or products, which has some effect on customer behaviour. Companies not only promote their newly launched products or services but also maintain their work of brand advertising (Vakratas and Ambler 1999). Brand advertising intends to increase brand consciousness, improves brand attitudes, influences brand choices, and affects the purchasing behaviour of the customers. Verhoef et al. (2002) found that consumers loyal to the company like to buy extra services. In 2012, direct marketing communication appears as the most dominant marketing method in U.S. retailers’. They expended $10.7 billion in direct marketing communication that year, and it is 43% of U.S. total advertising expenses. Advertising of products and services significantly changes the adoption of new services and products in emerging markets. It is said that brand advertising generates a more optimistic approach towards the brand. It definitely influences the attitude towards the newly launched service and affects the new service or product adoption behaviour. This effect is considerably less significant than the consequence of particular service advertising, which intends to develop consciousness for the new services and changes the outlooks towards the brand. Thus, it can be proposed as follows.

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Proposition 9 Brand advertising takes less time for the customers’ to adopt new products, and service advertising will take lesser time for the customers’ to adopt than brand advertising.

2.6 Competitive Service Advertising New services are generally started in the market by various companies. Competitors always launch similar services. Different advertising of the competitors stimulates the customer’s perception to adopt new services or products. It was supposed that competitive service advertising may hamper the perceptions of the customers and can negatively affect the existing customers to adopt new services but there are abundant evidence which show that competitive service advertising can be significantly influenced by direct marketing communication. Rust et al. (2004b) opined that if a company raises its publicity and promotion policy, it generates a positive attitude creation through superior brand equity and brand awareness. Thus, higher choice shares are directed to the main provider and lower preference shares for challenging suppliers. Various previous researches (Naik and Raman 2003) examined the cooperation between mass marketing communication and direct marketing communication. It has a constructive relation that produces consciousness and a positive approach for the new products and services. In emerging markets, competitive brand advertising intends to produce consciousness about the competing brands. It also enhances the positive approach between the competing brands through direct marketing communication. It affects the buying behaviour of the customers among the competing brands. A promising effect of competitive brand advertising through direct marketing in an emerging market is the improvement of a constructive outlook towards the competing brand and the existing customers. Mahajan et al. (1993) examined the recent markets with a comparatively smaller number of competitors. The competitors get advantage from each other’s advertising and promotion works relating to the new product or service adoption, due to a higher penetration rate. A few studies (Krishnan et al. 2000; Krishnamurthy 2000) showed that the advertising and promotional work between the competitors enhance the diffusion rate of new products and services like direct marketing communication and they can accelerate and increase the individual adoption through the market creation. From these above literature, we can propose the following. Proposition 10 In both emerging and developed markets, competitive service advertising through direct marketing communication in emerging markets shortens customers’ time to adoption.

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2.7 Customer Relationships and Company Reputation Transfer To make good relationships with the clients, B2B companies directly mail messages to them. The communications among clients and companies are common in B2B markets. The assessments of B2B clientele about the companies vary according to their previous incidents with the companies (Bolton et al. 2006). Dwyer et al. (1987) found that B2B consumers observe the worth of the B2B firm according to the category of marketing effort offered by the B2B firm. According to various studies (Dwyer et al. 1987; Bolton et al. 2003), there are economic values and relational values of direct marketing communications. Economic values consist of a promotional characteristic of direct marketing communication which consumers assess using realistic judgement. Marketing efforts insist to create a connection with the customers more financially attractive by providing financial bonds. It is also considered as economic marketing communication (Gassenheimer et al. 1998). Marketing efforts build the relationship more personally (Gassenheimer et al. 1998). Social or relational values are the non-monetary feature of direct marketing messages which induce emotional reactions (Ulaga and Chacour 2001; Liu 2006). In case of emerging markets, B2B companies utilize direct marketing communication to reduce consumer mixing and develop beneficial interaction (Venkatesan and Kumar 2004). Research showed that the consequence of relational and economic marketing communication on consumers’ buying behaviours varies over time. In developing countries, relational and economic marketing communication encompass different direct marketing communication begun by a service company in B2B interaction (Adhikary and Adhikari 2019). Economic marketing communications are designed to make the company and customer relationship more economically appealing and increase customers’ monetary pleasure in developing countries. Economic marketing communication consists of messages containing information about monetary incentives, like price discounts, cost reduction opportunities, and proposal for cost-effective products through direct marketing communication. Relational marketing communication focused on creating private relationships with customers and increases customers’ communal satisfaction. Some researchers showed that commercial status depends on three characteristics of the business, like transaction cost, quality management, and market entry barriers. Vendor’s target is to utilize the constructive reputation of the companies to introduce new categories of products and services to new clientele. If the new products and services are similar to the other products and brands of a vendor and it is already known to the customers, the reputation of the company is transferred to the customer by previously established relationships. This previously known relationship is termed as customer satisfaction and reliability (Walsh and Beatty 2007). In online marketing, vendor’s reputation is one of the significant variables for decision-making, It creates the situation whether a vendor is relevant or not in the domain of direct marketing (Wu et al. 2004). Customers differ according to their habitat and national culture (Hofstede 2001). The individual culture of the customer focuses on individual

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profit and they value personal accomplishment (Hofstede 2001). Consumers want more flexibility from the supplier to gather their individual requirements (Salter and Niswander 1995). The significant influence of national culture to build customer’s belief is mentioned in many studies (Homburg et al. 2005). According to Trompenaars and Hampden-Turner (1997), national environmental traditions of the organization influence the management process as the mentality of its members and managers is governed by it. In developing countries, direct marketing communication has a significant impact on conveying the reputation in different countries and in different cultures. Some cultures prefer the conservation of the environment to make a buying decision. Another culture takes national economic growth as the highest priority and is affected by it. Research shows that it differs significantly by national cultures and influences the achievement of reputation transfer. The success of reputation transfer is also influenced by national culture. Individualistic cultures in direct marketing communications are inclined to facilitate individual profit. Research showed that countries preferring individual benefits are Germany, Finland, and Australia. Countries which are less focused on individual benefits are Spain, Russia, India, Chilli, etc. Thus, it can be proposed as follows. Proposition 11a Direct marketing communication has a significant impact on customer relationships in emerging markets. Proposition 11b Direct marketing communication has been extensively influenced by company reputation and its transfer in emerging markets.

3 Conclusion Emerging countries have an attractive customer base for both international and domestic firms. The growing middle class of these countries has high buying capacity, hence has a significant effect on direct marketing on these consumer buying behaviour. Direct marketing supply channel and advertising constitute a significant positive effect on a company’s financial performance. Hence, companies can do direct marketing both in their supply channel and communication and can have a significant positive interaction effect on buyer’s purchase intention resulting in the company’s increased financial performance in emerging markets. Companies also need to identify what kind of direct marketing activities they would choose for new and existing customers since these two types of customers will exhibit different responses to direct marketing services in the short and long run. Companies may find that direct marketing communication influences existing customers while that may not significantly influence the new customers. Companies should also go for individual-oriented direct marketing communications as it has significant positive effects on the customer’s purchase behaviour in both emerging and developed markets. Such individual-specific communication may not

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be difficult in today’s technology-centric world. Emerging market companies may also heighten quality design perceptions in direct service distribution channels in emerging countries which would improve the impact of service performance and direct marketing intensity on the company’s revenue.

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Rust, R. T., & Chung, T. S. (2006). Marketing models of service and relationships. Marketing Science, 25(6), 560–580. Rust, R. T., & Verhoef, P. C. (2005). Optimizing the marketing interventions mix in intermediateterm CRM. Marketing Science, 24(3), 477–489. Salter, S. B., & Niswander, F. (1995). Cultural influence on the development of accounting systems internationally: A test of gray’s (1988) theory. Journal of Economic Behavior and Organization, 34(3), 387–418. Schweidel, D. A., & Knox, G. (2013). Incorporating direct marketing activity into latent attrition models. Marketing Science, 32(3), 471–487. Simon, J. L., & Arndt, J. (1980). The shape of the advertising response function. Journal of Advertising Research, 20(4), 11–29. Sinha, R. K., & Adhikari, A. (2017). Advertised reference price and sales price as anchors of the latitude of expected price and its impact on purchase intention. European Journal of Marketing. Steel, E. (2008). Marketers reach out to loyal customers. The Wall Street Journal. Available at https://online.wsj.com/news/articles/SB122766322705958805. Accessed 23 May 2014. Steenkamp, J.-B. (1990). Conceptual model of the quality perception process. Journal of Business Research, 21(4), 309–333. Steenkamp, J. B., & Gielens, K. (2003). Consumer and market drivers of the trial probability of new consumer packaged good. Journal of Consumer Research, 30. Trompenaars, F., & Hampden-Turner, C. (1997). Riding the waves of culture (2nd ed.). Nicholas: Brealey Publishing, London. Ulaga, W., & Chacour, S. (2001). Measuring customer-perceived value in business markets: A prerequisite for marketing strategy development and implementation. Industrial Marketing Management, 30(6), 525–540. Vakratsas, D., & Ambler, T. (1999). How advertising works: What do we really know? Journal of Marketing, 63, 26–43. Venkatesan, R., & Farris, P. W. (2012). Measuring and managing returns from retailer-customized coupon campaigns. Journal of Marketing, 76, 76–94. Venkatesan, R., & Kumar, V. (2004). A customer lifetime value framework for customer selection and resource allocation strategy. Journal of Marketing, 68, 106–125. Venkatesan, R., Kumar, V., & Bohling, T. (2007). Optimal customer relationship management using bayesian decision theory: An application for customer selection. Journal of Marketing Research, 44(4), 579–594. Verhoef, P. C. (2003). Understanding the effect of customer relationship management efforts on customer retention and customer share development. Journal of Marketing, 67(4), 30–45. Verhoef, P. C., Frances, P. H., Hoekstra, J. C. (2002). The impact of satisfaction and payment equity on cross-buying: A dynamic model for a multi-service provider. Journal of Retailing, 77(3); 359–378. Verhoef, P. C., Franses, P. H., & Hoekstra, J. C. (2002). The effect of relational constructs on customer referrals and number of services purchased from a multiservice provider: Does age of relationship matter? https://doi.org/10.1177/0092070302303002. Walsh, G., & Beatty, S. (2007). Customer-based corporate reputation of a service firm: Scale development and validation. Journal of the Academy of Marketing Science, 35(March), 127–143. Wu, D., Gautam, R., Geng, X., & Whinston, A. (2004). Implications of reduced search cost and free riding in E-commerce. Marketing Science, 23(2), 255–262. Wulf, De., Kristof, G.-S., & Iacobucci, D. (2001). Investments in consumer relationships: A crosscountry and cross-industry exploration. Journal of Market ing, 65, 33–50. Zeithaml, V. A., & Parasuraman, A. (2004). Service quality. Cambridge, MA: Marketing Science Institute. Zeithaml et al. (2006). Forward-looking focus: Can firms have adaptive foresight? Journal of Service Research, 9(2), 168–183.

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Mahuya Adhikary is an Assistant Professor in Basic Science and Humanities Department at Budge Budge Institute of Technology, Kolkata. She also works as a Guest faculty in Netaji Subhas Open University. Dr. Adhikary has worked as a Guest faculty in Calicut University, Kerala and as a faculty in ICFAI University, Hyderabad. She is a gold medallist from Jadavpur University, Kolkata. Dr. Adhikary has about 12 years teaching experience in various academic institutions and has a number of publications in various national and international journals. Atanu Adhikari is a Professor in the area of Marketing Management at IIM Kozhikode. His current research area includes consumer choice behaviour, experience product marketing, pricing, and applications of Bayesian econometrics in marketing research. He is actively involved in scholarly academic research work, which has been in many national and international peer-reviewed academic journals. Prof. Adhikari was affiliated as a doctoral fellow of Royal Statistical Society, Commonwealth Academic Fellow to London Business School, and was a Visiting Researcher at Syracuse University. He has also co-authored and edited books published by leading publishers, namely Springer, Sage, John Wiley, Cambridge Scholar Press, Gower Publication, and Cengage Learning. His research work has been selected and presented in several prestigious international conferences organized by Marketing Science, American Marketing Association, World Congress in Probability and Statistics, World Research Summit in Hospitality and Tourism and similar academic forums in the USA, UK, France, Germany, Italy, China, Australia, and Singapore.

Chapter 7

E-Servicescape in Service: Theoretical Underpinnings and Emerging Market Implications Rituparna Basu and Sayani Mandal

1 Introduction Over the last couple of decades, the scale and complexity of services have undergone a remarkable shift owing to the digital disruptions that clearly redefine the rules of its new competitive landscape. Globalization, fast-growing markets, critical customers, increasing access to information brought about changes in how services are packaged and offered with growing emphasis on service innovation. While on one hand, product firms are clearly working on the “servitization” of their products, the service organizations are working on creating more valuable experiences for their customers. Such service innovations across varying degrees of product, process or marketing innovations are largely manifested in the service environment for building more sustainable value propositions. The servicescape as an integral part of this service environment is the proxy of quality for the intangible service offer and portrays a certain image to differentiate it from its competitors. Naturally, in the digital era, the servicescape has its new avatar in the form of the e-servicescape. Defined as the online physical factors that exist in the moment of service delivery (Wu et al. 2017), the e-servicescape like its traditional counterpart is often a mix of functional, hedonic and symbolic elements that facilitate the service encounter to enhance productivity in the process. It is imperative in maintaining an effective relationship with customers to drive long-term sustainability of the service firm (Demangeot and Broderick 2010). It functions by integrating information, entertainment and seamless management of website organization for product

R. Basu (B) · S. Mandal International Management Institute Kolkata, Kolkata, India e-mail: [email protected] S. Mandal e-mail: [email protected] © Springer Nature Singapore Pte Ltd. 2020 A. Adhikari (ed.), Services Marketing Issues in Emerging Economies, https://doi.org/10.1007/978-981-15-8787-0_7

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and/or service information dissemination to customers through the electronic platform (Mohammed et al. 2003; Trocchia and Janda 2003; Vilnai and Rafaeli 2006; Kühn et al. 2015). Essentially, rising competition in the developed markets and penetration of ecommerce across the global markets make way for marketers to adopt e-servicescape models across developed as well as the emerging markets. Recent studies conducted by researchers like Kühn et al. (2015), Huang et al. (2017), Dassanayake and Senevirathne (2019), Sreejesh and Ponnam (2016), Wu et al. (2017) and others specific to several emerging markets highlight the growing popularly of services like hospitals, travel, tourism, distance education, hotels, retail, etc. that have taken to eservicescape-based service delivery models to expand in these markets. Contrary to cynical views on the applicability of e-servicescape models in emerging markets especially those with relatively low internet penetration, it becomes imperative for marketers to understand that the modern cohorts of globally aware and connected customers across developed as well as emerging markets are no different from each other in terms of their service expectations (Diallo 2012). Hence, with the growing acceptance around the importance of e-servicescape across global markets in the new digital era of business, the following sections of this research chapter aim to: – Understand the journey and transformation of e-servicescape in the context of digital evolution in service industry. – Formulate a holistic e-servicescape model for service to aid researchers and practitioners with working insights on the same. – Present a critical review of the implications of an e-servicescape-based service delivery model specific to the context of the emerging markets.

2 E-Servicescape: Tracing the Evolution In the early 90s, Bitner (1992) coined the term “Servicescape” to connote the actual physical environment of a retail store defined in terms of its various elements encompassing product display to service delivery. Servicescape serves as the relatively tangible dimension to the largely intangible service offer and supports the customer interaction in the process. Servicescape as manifested in the physical environment of the service design speaks about the quality of the offer and helps in building a positive service delivery perception for the service organization. However, the servicescape of a retail store would be different from a store delivering a pure service like that of an airline ticketing service or a freight service. In any case, servicescape empowers customers to assess, evaluate and build perception about the products or services available for purchase or experience before the final purchase or experience. It plays an important role of communicating the organization’s image and purpose to its customers (Rapoport 1982). Essentially, servicescape refers to the physical setting in which the service is rendered. It stands as the visual metaphor of the business and facilitates consumers’ and employees’ interactions in the process (Zeithaml and Bitner 2000).

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In the digital era, the transformations in the way of doing business necessitated the transformation of the servicescape. The rise of internet, changing consumer preferences, ease-of-use led consumer choices and competitive pressures led to rising adoption for e-servicescape-based service delivery models across services. The physical environment was no longer limited to brick-and-mortar stores as the internet revolution changed the way how customers were serviced across businesses and industries. In a natural progression from the physical to the online environment, the traditional physical setting of the servicescape was replaced by the virtual representation of its physical elements (Kühn et al. 2015; Sreejesh and Ponnam 2016; Wu et al. 2017). E-servicescape also referred to as “virtual servicescape” (Kühn et al. 2015; Mummalaneni 2005; Vilnai and Rafaeli 2006), or “cyberscape” (Kühn et al. 2015; Williams and Dargel 2004) replaced the physical form-based environment with a tangible evidence of the service in its virtual form. Facing the digital wave, while some businesses shifted to the virtual space, some opted for an omnipresence in the physical and virtual platforms to remain competitive. The traditional service space saw new entrants in the form of omni-channel service offers like app-based cab services that operated with a balanced virtualphysical service delivery model and that of purely virtual service offers like the online music streaming service or online media (as given in Table 1). To illustrate further, while some dimensions in both ends of the virtual-physical spectrum are overlapping, they are significantly different in terms of their scope of e-servicescape usability. For instance, the e-servicescape for app-based cab services like Uber or Ola ensures mainly the ease-of-use, cab booking and payment feasibility. For e-services like mutual funds or online study courses or online media, there is no physical delivery of service and therefore, the e-servicescape of such services demands a more communicative website, convenient display of information in the website along with security of payment. In such purely online services, the ambient conditions, spatial layout/functionality and signs, symbols and artifacts along with payment safety plays Table 1 Types of service delivery models Virtual-Physical Continuum Virtual

Physical Traditional Services

E-services

Omni-Channel Services Example

Nature of service environment Scope of e-servicescape

Netflix media)

(online

Uber (app based cab service)

Purely virtual from Co-existence of virtual, physical process

Hospitals Purely physical process where it

process to physical and physical evidences for simultaneous is largely people driven and evidence

as well as alternative use.

physical evidences are tangible.

High

High to Medium

Limited

Source Author’s adaptation

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a major role as a performance indicator. The effectiveness of such an environment would convert a potential user to a final purchaser of the services. Whereas, the service organizations that are omnipresent in both physical and virtual platforms, would need a different model of service environment where online payment or proper display of service information would ensure online purchase of services executed offline through physical contact. The basic motives like those of communicating the business image or that of facilitating interactions with customers and employees remain the same for servicescape and e-servicescape. Both are designed to primarily deliver: – The right packaging of the service – Facilitating the service process and – Socializing employees and customers with the organizational values, norms and processes. On the whole, servicescape in its physical or virtual form serves as an effective tool to differentiate the positioning of the offer from that of the competitors. It helps as an integral part of the crucial service environment for the service. Furthermore, the scope of e-servicescape usability in particular also varies with the level of coproduction scope for the e-service in question. As seen in Table 2 for selfservice-based e-services like those of online photo or video editing services, or online music streaming sites or apps, the e-servicescape needs to have the highest degree of design to support the functions of service packaging and facilitate the all-round process of the service delivery model for the consuming customer. In case of interpersonal e-services like vacation planning, salon booking services, the e-servicescape needs to ensure an environment to enable customer–employee interactions apart from the other function. However, for remote services like mobile network services where there is no scope for coproduction by customer, the e-servicescape serves to represent the service in the virtual space with adequate support for back end operations service organization end. Table 2 Scope of e-servicescape E-Servicescape functions

E-service variants Self-services

Interpersonal services

Remote services

Service packaging

High

High

High

Service process facilitation

High (front and back end processes)

High (front end processes)

High (back end processes)

Social interactions

Low

High

Low

Source Author’s adaptation

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3 Characteristics of E-Servicescape: The Theoretical Underpinnings The strong connection between physical environment of a service organization and customer’s perception of the overall service experience is established (Bitner 1992). Studies show how customers commonly look for cues about a firm’s capabilities and quality before purchasing its products (Berry and Clark 1986). Bitner (1992) described “servicescape” as the packaging of services and categorized it into three components—(a) ambient conditions, (b) spatial factor and (c) signs, symbols and artifacts. The ambient conditions involve sensory elements, such as temperature, color, lights, noise, music and scent. The spatial factor embraces the store layout, equipment and furnishings, defining basically the physical and spatial environment where the service is performed and the signs, symbols, and artifacts relate to signage, personal artifacts and style of décor, signifying the factors which contribute to create an appropriate environment during the process of service delivery and service consumption. As e-servicescape plays an equally important role in the modern-day service industry, Harris and Goode (2010) in their study mentioned about three components of e-servicescape; namely, (a) aesthetic appeal, (b) layout and functionality and (c) financial security (Kühn et al. 2015; Tran and Strutton 2020). It includes a range of factors like visual appeal, entertainment value, design and usability of the website, information on website, perceived security of transaction, etc. Often, aesthetic appeal allows the ground for competitive distinction for an online service provider as it positively impacts the consumer’s sense of online shopping experience (Trocchia and Janda 2003; Vilnai and Rafaeli 2006; Liu et al. 2017). The digital subject matter including text, video, audio and graphics as well as the message specifics pertaining to product and/or service and informational offerings become extremely essential for online selling platforms (Mohammed et al. 2003). The layout and functionality of the website determines the ease-of-use and the degree of customization which in turn allows to build communication between the service provider and the user (Rosen and Purinton 2004; Zeithaml and Bitner 2000). This drives the consumer’s perception of e-service quality that results in patronage (Rosen and Purinton 2004). Hence, the customers or users incur switching cost while changing service providers and in turn has the potential to ensure repeat visits, loyalty and patronage of customers (Harris and Goode 2010; Tankovic and Benazic 2018). Moreover, the assurance for financial security and even privacy also drives users to continue making purchase from the same website (Dassanayeke and Senevirathne 2019; Wong et al. 2016). Research shows how aspects of aesthetics influence customers’ feelings of pleasantness, satisfaction, and overall impression toward service interactions in an online environment (Wu et al. 2017). The aesthetics portray professionalism which in turn influences customer satisfaction. Williams and Dargel (2004) discuss the intangible benefits provided to the users of a website, like convenience, saved time and reduced risk of customer dissatisfaction with the help of adequately provided information on

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the website. Studies on e-commerce and digital evolution mention how internet minimizes the risk of customers’ postpurchase dissatisfaction, as it enables customers to enhance their own search and evaluation capabilities (Wu et al. 2017). Moreover, it allows them to achieve such search and evaluation access beyond traditional distribution channels and physical environments, designed and planned to elicit cognitive and emotional responses (Williams and Dargel 2004). Lack of trust and negative attitudes toward websites and brands are bound to impact prospective customer’s purchase intention negatively in an online context. Trust is not only pivotal to online exchanges (Yen and Gwinner 2003) but also central to online service dynamics (Harris and Goode 2004). Additionally, some studies propose a strong positive relationship between website attitudes and brand (or product) attitudes, with both being positively related to purchase intentions (Hwang et al. 2011). Past literature substantiates the significant impact of e-servicescapes on customer assessments and consequent responses toward an organization’s website particularly for an online retailer (Hopkins et al. 2009). Such responses could be in the form of his engagement intentions like his eWOM behavior (Park and Lee 2009; Hsieh et al. 2012) that further adds to the credibility of the e-servicescape.

4 E-Servicescape in Service: A Holistic Framework Given the characteristics of e-servicescape, the nature of its varied determinants and consequent responses, a working e-servicescape model could well serve as a guide to marketers who are exploring ideas to be more effective in the new digital regime. The model depicted in Fig. 1 consists of six stages beginning with the virtual dimensions (stage 1) followed by the holistic environment (stage 2) that leads to developing employee and customer responses (stage 4). The model interestingly considers the moderating role of employee and customer moderators (stage 3) to finally show the response path from cognitive response (stage 5) to purchase behavior (stage 6) to give a holistic view of the e-servicescape effects in ensuring the effectiveness of the service environment. A stage-wise working could be detailed as follows: Stage 1: Virtual Dimensions The virtual environmental dimensions are considered as a set of stimuli commonly used when developing e-servicescape models. The set of stimuli include aesthetic appeal, spatial layout/functionality, financial security, social interaction and social appeal (Kühn et al. 2015; Harris and Goode 2010). Aesthetic appeal encompasses the overall impressiveness and attraction of a website, spatial layout and functionality entails the design aspects of a website which create enjoyable interactions and experiences for users, the financial security involves security tools that are used by consumers while making a payment. Needless to say, the effectiveness of the virtual environment is ruled by the user’s experience with a computer-generated environment. According to Lombard and Ditton (1997), distinct conceptualization of the virtual environment should consider six key aspects. Stemming from the Social

Perceived value of e-servicescape

Holis c Environment

Customer Response Moderator

Response Path

Cogni ve Emo onal Physiological

Customer Response

Cogni ve Emo onal Physiological

Employee Response

Internal Responses ------------->

Fig. 1 The holistic e-servicescape framework. Author’s adaptation based on servicescape model by Bitner (1992)

Social Interac on & Appeal

Financial Security

Spa al Layout/Func onality

Aesthe c Appeal

Virtual Environmental Dimensions

Employee Response Moderator

Moderators

Behaviour

Behaviour

Final Behaviour

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Presence Theory (Short et al. 1976) and Media Richness Theory (Rice 1992) the social richness (being sensitive and personal) of the medium along with other dimensions such realism (for correct representation of objects and people), transportation (allowing users to seamlessly engage in the virtual shared space), immersion (the sensory appeal), social actor within medium and medium as social actor should be well constructed for its effectiveness. While stimuli could also include certain other factors like social interaction or appeal that entails development and existence of a communicative environment between the user and customer service executives (employees) for simplicity of the model, the three primary determinants along with holistic social appeal dimension have been used for the working model. Considering a wider definition of servicescape, the social atmosphere is included in the virtual dimension to not only include the interactions of the people present in the service space for rendering and receiving the service but also include the influence of other consumers (Jalón et al. 2019) who may be actively contributing to the physical as well as the online service environment. Stage 2: Holistic Environment (perceived value of e-servicescape) Perceptions of a service organization’s holistic environment are formed once the virtual dimensions play their necessary role in developing perceptions about the organization for employees and customer. In other words, the holistic environment of the e-servicescape model pertains to collective perception of the virtual environment that employees and customers form when exposed to it. Specifically, the holistic environment is the perceived overview of the service organization in the eyes of the employees and customers, referred to as perceived value of e-servicescape. This perception is a mental image in the minds of the customers and employees. A strategic management of e-servicescape would benefit any service organization to competitively sustain with differentiation and aid in influencing the final purchase decision of customers (Wu et al. 2017; Teng et al. 2018). Stage 3: Moderators Customer and employee responses to the firms are influenced or moderated by several factors at the supply as well as the demand side. Such moderators could be classified as: – Employee Response Moderator: The seamless navigability, proper website management, strong internet connection, fast computer systems, minimal power cuts, easy and comprehendible website usage are some of the crucial factors that moderate the response of the employee toward the organization. Existence of these factors would positively influence the employee’s behavior toward the organization and that would generate a positive response toward his work and commitment to the organization. – Customer Response Moderator: The 24 × 7 customer assistance, customer helpline numbers, customer complaint handling, high customer issue resolve percentages, action toward customer complaints, customer feedback management, customer reviews authenticity in websites, unbiased service reviews on

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the website—all these factors moderate the response of the customer toward the organization. This ensures positive response of customers toward the service organization and an absence would negatively influence customer response. Stage 4: Response Path (Internal Responses) This stage is an outcome of e-servicescape value perception of the key stakeholders moderated by the response management variables. Similar to Bitner’s (1992) model of servicescape, the value perception of the e-servicescape also results in internal responses that could be in the form of cognitive, emotional and physiological responses of the employee and the customer, respectively. It may be noted that the e-servicescape does not directly cause customers or employees to behave in specific ways, but the environment elicits emotions and beliefs in their minds, which in turn influences behavior. The range of internal responses is interdependent and their interplay results in the final behavior. Cognitive responses form beliefs. It refers to the activity that goes on in our mind concerning acquisition, processing, retention and retrieval of information (Eroglu et al. 2001). For instance, the fine aesthetics of the e-servicescape influences the employee’s belief in the capability of the organization that they work for. On the other hand, this would also positively influence the customer’s categorization of the service firm relative to competition. Emotional responses may elicit pleasure, displeasure or even act as arousal. Such emotional responses in the way of consumer’s trust, patronage, loyalty intention or employee’s allegiance, loyalty and commitment to perform are responsible to affect the stakeholder’s behavioral response. For a customer, the seamless navigation of the e-service website may act as an emotional urge to spend more time. On the employee side, such features would encourage them to work with greater commitment. Emotional responses are effective in nature and may interplay with the physiological responses as well. Although the physiological responses have more to do with the physical comfort or discomfort of the stakeholders, it may be equally applicable in the eservicescape model. To illustrate, the physical comfort of an employee or customer to complete a transaction in the online environment by virtue of the online layout and functionality of the e-service not only results in actual behavior but also influences his cognition and emotional responses. Therefore, service organizations must ensure creating a suitable environment to stimulate positive behavior of the employee as well as the customer. Step 5: Response Path (Final Behavior) The e-servicescape holistic framework completes with employees’ and customers’ behavioral response to the virtual environment. The final behavior of employees and customers influenced and moderated by the previous stages would ensure business growth supported by customer’s and employee’s patronage. Here, the employee behavior and customer behavior are interlinked as their virtuous interplay ensures sustainable outcome in the form of satisfaction and consequent patronage with their growing levels of involvement with the e-service delivery environment of the service organization. The employee’s honest effort and commitment to provide the best

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service experience is often rewarded by the heightened appreciation of a satisfied customer that further reinforces their positive favorable behavior toward each other and toward the e-service organization.

5 E-Servicescape in the New Service Paradigm Considering the specific case of B&B websites, Jeon and Jeong (2009) identified four dimensions viz., Functional Aspects (Customer support for queries or assistance), Ambient Conditions (quality photos, colors, animation effects, virtual tour, and music/sound), Design Aspects (overall structure, layout, wisely used space, and easy navigational functions on the web pages) and Search Aids & Slogans (use of keywords, search engine optimization) of e-servicescape model which affect the perceived quality of e-servicescape. On a similar note, Hopkins et al. (2009) advanced a study on online retailers and collectively identified three dimensions of e-servicescape as Ambient Conditions, Spatial Layout/Functionality and Signs, Symbols & Artifacts which affect the attitude towards the website of a service provider that ultimately affect the evaluation of service provider and determine the purchase intention of users visiting the website. Nevertheless, one must note that e-servicescape differs for different forms of services. With the advent of internet and technology, many service organizations consider their presence in the virtual environment, a mandatory affair to ensure that they do not lose customers across physical and virtual platforms. However, there are few organizations whose virtual presence is all that matters, as there is no scope of physical embodiment. The absence of physical environment requires such organizations to design their virtual presence differently as compared with service organizations being present both on online and offline platforms. This complicates the entire scenario of e-servicescapes we witness in the world today. Services like Amazon Prime or Netflix would ensure easy search of information and display facilities and payment security than artefacts or slogans. On the other hand, online astrological services ensure proper display of information on their website with exclusive deals for single or bundle purchase and e-servicescape of such a service organization would highly differ from an e-servicescape of a bank. A bank’s e-servicescape provides information and details and ensures ease-of-use with security of information. Therefore, in this complex world of various kinds of service organizations, while the significance of elements may differ, the key insights to remain competitive with the service delivery model would need consideration of the following: – E-servicescape is a dynamic model of service delivery: The physical servicescape model has presented reflections of business innovations for the past many years and has matured over time. But disruptions in the digital space like Artificial Intelligence and Machine Learning would change the entire game of e-servicescape model in the panorama of service delivery models and environment. The service delivery reflected in the virtual environment needs to be treated as a dynamic

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model that is flexible to adapt continuously with disruptions and technological advancements. – Innovation calls for flexibility in the e-servicescape model: With changing times and business innovations, e-servicescape models would also change the ambient factors, the spatial and functional layout alongside robust payment gateways to ensure secure transactions and building patronage. To perform this change constantly, the e-servicescape model demands the service provider to be flexible enough to incorporate the competitive changes to stay ahead in the competition for business survival and sustenance. – Technological advancements make synergy between physical and virtual environment necessary: With rise in technological advancements, businesses are gearing up to competitively design their e-servicescape for better customer engagement and assistance. Alongside developments and innovations in the virtual environment, businesses must not ignore the significance physical environment holds in the service delivery genre. Services that command dual existence of physical and virtual platforms should pay more attention to the equivalent and synergistic advancement across platforms, as falling short in one environment would hamper the other. The reputation and trust need to be built across platforms, as physical environment is ultimately responsible for executing the experience of service delivery and service consumption process.

6 E-Servicescape Implications in the Emerging Market: A Concluding Remark Proliferation of internet usage among consumers supported by disruptive technological shifts in information–communication–technology is changing markets across the world alike (Sreejesh and Ponnam 2016). Shifts from traditional marketing medium to online channels of marketing are no more just a developed market phenomenon. Despite limited research on e-servicescape, researchers attempting to model eservicescapes in the context of developed and emerging markets seem to use and justify similar dimensions. According to several research results, the virtual environmental dimensions hold true to ascertain the effectiveness of the e-servicescape and the service organization in the context of emerging markets (Huang et al. 2017; Kühn et al. 2015; Dassanayake and Senevirathne 2019; Sreejesh and Ponnam 2016; Wu et al. 2017). Several studies conducted in China, India, Srilanka, South Africa, Taiwan, etc. hint at the growing acceptance of the e-commerce-based business models in services ranging from airline booking, hotels, to retail and even education. This may be attributed to the basic demographic similarities of the profile of general internet users worldwide with those of the early adopters of e-commerce in the emerging markets. Essentially, the class of educated and globally aware consumers of e-commerce worldwide is guided by close to similar service expectations irrespective of the market that they hail from.

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Nevertheless, it would be prudent to consider some market-specific challenges for service organizations strategizing their e-servicescape-based service delivery models in the emerging market context. First, the possibility of higher risk perception and distrust of the early majority of the e-service users may need more proactive actions by marketers to ensure sustainable penetration into the market. Service organizations with the virtue of their user-friendly, appealing designs and functionality of their online interface is expected to resolve initial concerns of the emerging market consumer and secure patronage for long-term business sustainability. Second, for multinational service organizations, culture-specific website aesthetics and virtual dimensions will be the need of the hour to ensure better response of the stakeholders and bring business success.

References Berry, L. L., & Clark, T. (1986). Four ways to make services more tangible. Business (October– December), 53–54. Bitner, M. J. (1992). Servicescapes: The impact of physical surroundings on consumers and employees. Journal of Marketing, 56(2), 57–71. Dassanayake, H., & Senevirathne, A. (2019). Impact of e-servicescapes on student engagement: Mediating impact of experience quality. Asian Association of Open Universities Journal. Demangeot, C., & Broderick, A. J. (2010). Exploration and its manifestations in the context of online shopping. Journal of Marketing Management, 26(13–14), 1256–1278. Diallo, M. F. (2012). Effects of store image and store brand price-image on store brand purchase intention: Application to an emerging market. Journal of Retailing and Consumer Services, 19(3), 360–367. Eroglu, S. A., Machleit, K. A., & Davis, L. M. (2001). Atmospheric qualities of online retailing: a conceptual model and implications. Journal of Business Research, 54, 177–184. Harris, L. C., & Goode, M. M. H. (2004). the four levels loyalty and the pivotal role of trust: A study of online loyalty, trust, satisfaction, value, and service quality. Journal of Retailing, 80(2), 139–158. Harris, L. C., & Goode, M. M. H. (2010). Online servicescapes, trust, and purchase intentions. Journal of Services Marketing, 24, 230–243. Hopkins, C. D., Grove, S. J., Raymond, M. A., & LaForge, M. C. (2009). Designing the e-servicescape: implications for online retailers. Journal of Internet Commer, 8(1–2), 23–43. Hsieh, J. K., Hsieh, Y. C., & Tang, Y. C. (2012). Exploring the disseminating behaviors of ewom marketing: persuasion in online video. Electronic Commerce Research, 12(2), 201–224. Huang, D., Li, Z., Mou, J., & Liu, X. (2017). Effects of flow on young chinese consumers’ purchase intention: A study of e-servicescape in hotel booking context. Information Technology & Tourism, 17(2), 203–228. Hwang, J., Yoon, Y. S., & Park, N. H. (2011). Structural effects of cognitive and affective responses to web advertisements, website and brand attitudes, and purchase intentions: The case of casualdining restaurants. International Journal of Hospitality Management, 30(4), 897–907. Jalón, M. L. D.; Ortega, A. G., & Curiel, J. D. E. (2019). The social perception of urban transport in the city of Madrid: The application of the servicescape model to the bus and underground services. European Transport Research Review, 11. Jeon, M., & Jeong, M. (2009). A conceptual framework to measure e-servicescape on a B&B website. International CHRIE Conference Refereed Track, 14, 1–8.

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Kühn, S. W., Spies, H., & Petzer, D. J. (2015). Online servicescape dimensions as predictors of website trust in the south african domestic airline industry. Southern African Business Review, 19(1), 44–71. Liu, A. F., Xiao, B. S., Lim, E. T. K., & Tan, C. W. (2017). The art of appeal in electronic commerce: understanding the impact of product and website quality on online purchases. Internet Research. Lombard, M., & Ditton, T. (1997). At the heart of it all: The concept of presence. Journal of Computer-Mediated Communication, 3(2). Mohammed, R. A., Fisher, R. J., Jaworski, B. J., & Paddison, G. J. (2003). Internet marketing: Building advantage in a networked economy. Boston: Irwin, McGraw-Hill. Mummalaneni, V. (2005). An empirical investigation of website characteristics, consumer emotional states and online shopping behaviors. Journal of Business Research, 58(4), 526–532. Park, D. H., & Lee, J. (2009). eWOM overload and its effect on consumer behavioral intention depending on consumer involvement. Electronic Commerce Research and Applications, 7(4), 386–398. Rapoport, A. (1982). The meaning of the built environment. Beverly Hills, CA: Sage Publications Inc. Rice, R. E. (1992). Task analyzability, use of new medium and effectiveness: A multi-site exploration of media richness. Organization Science, 3(4), 475–500. Rosen, D. E., & Purinton, E. (2004). Website design: Viewing The web as a cognitive landscape. Journal of Business Research, 57, 787–794. Short, J., Williams, E., & Christie, B. (1976). The social psychology of telecommunications. London: Wiley. Sreejesh, S., & Ponnam, A. (2016). Investigating the process through which e-servicescape creates e-loyalty in travel and tourism websites. Journal of Travel & Tourism Marketing, 34(1), 20–39. Tankovic, A. C., & Benazic, D. (2018). The perception of e-servicescape and its influence on perceived e-shopping value and customer loyalty. Online Information Review. Teng, H., Ni, J., & Chen, H. (2018). Relationship between e-servicescape and purchase intention among heavy and light internet users. Internet Research, 28(2). Tran, G. A., & Strutton, D. (2020). Comparing email and SNS users: Investigating e-servicescape, customer reviews, trust, loyalty and E-WOM. Journal of Retailing and Consumer Services, 53. Trocchia, P. J., & Janda, S. (2003). How do consumers evaluate internet retail service quality. Journal of Services Marketing, 17(3), 243–253. Vilnai, Y., & Rafaeli, A. (2006). Aesthetics and professionalism of virtual servicescapes. Journal of Service Research, 8(3), 245–259. Williams, R., & Dargel, M. (2004). From servicesacpe to cyberscape. Marketing Intelligence & Planning, 22(3), 310–320. Wong, Y. Y., Chun, J. Z., & Ho, K. (2016). Trends in open and distance learning research: 2005 Vs 2015. Asian Association of Open Universities Journal, 11(2), 216–227. Wu, W.-Y., Quyen, P. T. P., & Rivas, A. A. A. (2017). How e-servicescapes affect customer online shopping intention: The moderating effects of gender and online purchasing experience. Information Systems and e-Business Management, 15, 689–715. Yen, H. J. R., & Gwinner, K. P. (2003). Internet retail customer loyalty: The mediating role of relational benefits. International Journal of Service Industry Management, 14(5), 483–500. Zeithaml, V. A., & Bitner, M. (2000). Services marketing: Integrating customer-focus across the firm (2nd ed.). New York: McGraw-Hill.

Rituparna Basu is Associate Professor and Area Chair of Marketing at International Management Institute Kolkata. She won the first prize in the Global ISB-Ivey Case Competition 2017 and thereafter has a dual win to her credit with 2 teaching cases in the 2018 edition of the global competition. She received many awards including the prestigious AIMS Outstanding Woman Management Researcher Award 2017, AIMS-IRMA Outstanding Young Woman Management Teacher Award 2016 for her contribution to management teaching and research. She has written 25+

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peer reviewed research papers for top international journals and is cited widely. She has been an adjunct faculty to IIT Kharagpur and an Erasmus+ Grant awardee. Dr. Basu may be reached at [email protected].

Chapter 8

How Does Ownership Type Influence International Diversification-Firm Performance Relationship? Saptarshi Purakayastha and Somnath Lahiri

1 Introduction Intricacies of international diversification and firm performance have merited the attention of business scholars for more than 40 years (Buigues, Lacoste, & Lavigne, 2015; Hitt, Tihanyi, Miller, & Connelly, 2006; Majocchi & Strange, 2012; Rugman, 1976). Extant research documents how international diversification (ID hereafter) can produce linear (positive or negative), curvilinear (U-shaped, inverted U-shaped, S-shaped) or even no relationship on firm performance (see Glaum & Oesterle, 2007; Hitt et al., 2006; Hennart, 2011 for excellent reviews). In order to better understand the nature of ID-firm performance relationship (IDP hereafter), some scholars have investigated the role of contextual moderators (e.g., Brock et al., 2006; Yildiz, 2013; Xiao et al., 2013). Recently Gaur and Delios (2015), in a study of Indian firms, examined how ownership concentration impacts firms’ IDP relationship. Specifically, they examined how domestic and foreign ownership moderates IDP relationship. Firms’ ownership is known to play a crucial role in strategy formulation and performance (see Boyd & Solarino, 2016 for review). Yet surprisingly the role of ownership has not been adequately studied in the realm of IDP. From this standpoint, the study by Gaur and Delios (2015) is important. Our goal in this paper is to build on this study and extend the line of scholarship. We accomplish this goal by utilizing a multi-theoretic perspective incorporating the resource-based view of the firm (RBV), agency theory, and institutional perspective. Prior research suggests that owners expect the highest possible returns from their shareholding in investee firms. However, owners are not homogeneous entities. S. Purakayastha (B) Indian Institute of Management Calcutta, Kolkata, West Bengal, India e-mail: [email protected] S. Lahiri Illinois State University, Normal, IL, USA e-mail: [email protected] © Springer Nature Singapore Pte Ltd. 2020 A. Adhikari (ed.), Services Marketing Issues in Emerging Economies, https://doi.org/10.1007/978-981-15-8787-0_8

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They differ in resource endowments and capabilities that they bring to their investee firms. Heterogeneity in assets determines how owners support, monitor, and control strategic firm activities. RBV allows in highlighting the differences and explain how owners influence the firm (Boyd & Solarino, 2016; Hautz, Mayer, & Stadler, 2013; Peng & Jiang, 2010). Owners also differ in motivations, goal preferences, risk tolerances, and timelines (Douma, George, & Kabir, 2006; George & Kabir, 2012; Heugens, van Essen, & van Oosterhout, 2009). The tenets of agency theory allow us to highlight these differences and explain how owners (principals) exercise control and monitor the behavior of firm managers (agents) (Hautz et al., 2013). Finally, the institutional perspective aids in explaining how firms’ local context impacts governance practices which, in turn, influences strategy and eventual performance (North, 1990; Peng, Sun, Pinkham, & Chen, 2009). Drawing on these theoretical lenses we analyze in this study the influence of an important ownership type (family ownership) that did not feature in Gaur and Delios (2015) study. Boyd and Solarino (2016, p. 4) note that “[f]amily ownership is the most prevalent kind of ownership; the vast majority of listed firms worldwide are controlled by a founder or a descendant.” However, no study before has examined how family ownership impacts firms’ IDP relationship. In addition, we examine in this study the influence of domestic and foreign ownership on IDP relationship in greater detail (compared to Gaur & Delios, 2015) by disaggregating each into their (a) corporate and (b) financial institutional components. These ownership types, as we discuss in detail later, are markedly different. Clubbing corporate and institutional ownership components obscures their individual effects on IDP relationship. Taken together, this study examines ownership representing five influential shareholder groups: founding family, domestic (non-financial) corporations, domestic financial institutions, foreign (non-financial) corporations, and foreign financial institutions. The analysis covers a sample of 1074 Indian firms over a 6-year time-span (2007–2012). Our analysis reveals that while family- and domestic corporate ownership positively moderates IDP relationship, foreign corporate ownership results in negative moderation. Results further suggest that domestic- and foreign financial institutional ownership imparts no statistically significant influence on IDP relationship. These findings are new to the literature. Gaur and Delios (2015), whose study was based on a different time-period (1990–2005), found a positive moderating effect for domestic ownership and no statistically significant result for foreign ownership. Our fine-grained analysis, therefore, allows the enriching understanding of the effects of domestic and foreign ownership on IDP. Through this study, we contribute to three streams of literature: internationalization and, in particular ID, corporate governance, and emerging markets. The remainder of the paper is structured as follows. In the next (second) section, we provide a conceptual background relating to IDP and firms’ ownership type. In discussing ownership, we draw upon RBV, agency theory, and institutional perspective. In the third section, we develop hypotheses to test various moderating effects. In the fourth section, we describe our research methodology and provide the results

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of empirical analysis. In the fifth (final) section, we discuss the theoretical and practical implications of this study, highlight limitations and suggest avenues of future scholarship.

2 Conceptual Background 2.1 International Diversification and Firm Performance Rapidly diminishing trade barriers and increasing economic liberalization of markets around the world have facilitated MNEs’ growth through ID.1 By engaging in ID, MNEs are able to tap new location-specific resources, customers, and other stakeholders, leverage capabilities across different markets and institutions, achieve economies of scale and scope in operations, promote organizational learning and obtain higher returns on investments (Hitt et al., 2006; Hennart, 2011). However, ID can also be costly for MNEs owing to differences in the host market’s economic, cultural, political, and demographic aspects that create liability of foreignness and liability of newness (Hennart, 2007, 2011; Tallman & Li, 1996). ID is particularly risky for firms from emerging markets as they generally lack international exposure, suffer from liability of foreignness and are late entrants in the global competitive arena (Bhaumik, Driffield, & Pal, 2010; Gaur & Delios, 2015). Scholars have used several theoretical perspectives to explain IDP relationship (see Hitt et al., 2006; Yang & Driffield, 2012). Much of the early research in this area found evidence of linear IDP relationship. While scholars such as Buckley, Dunning, and Pearce (1977) and Grant (1987) found the linear relationship to be positive, others (e.g., Kumar, 1984; Siddharthan & Lall, 1982) found the relationship to be negative. Researchers explained such divergence in results by taking recourse to international business theories. While the positive relationship was rationalized using concepts such as economies of scale and scope, international product life cycle, and learning and knowledge transfer, the negative relationship was supported by concepts of liability of foreignness, coordination costs, and institutional risks. Interestingly a few scholars (e.g., Tallman & Li, 1996) concluded that a significant IDP relationship may not exist. In order to overcome the inconsistent findings, some studies proposed and found the IDP relationship to be non-linear (Capar & Kotabe, 2003; Thomas & Eden, 2004). But even non-linear results have been incongruent with some studies showing U-shaped relationships (Capar & Kotabe, 2003; Lu & Beamish, 2001) while others demonstrating an inverted U-shaped relationship (Gomes & Ramaswamy, 1999; Hitt, Hoskisson, & Kim, 1997). To overcome the disparate findings, some scholars (Contractor, Kundu, & Hsu, 2003, Thomas & Eden, 2004) hypothesized and 1 In

the extant literature terms such as international expansion, international diversification, degree of internationalization, multinationality, and geographic diversification have been used to refer to the same construct (Hitt et al., 2006, p. 832; Kirca et al., 2011, p. 48).

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concluded the IDP relationship to be S-shaped. They argued that in the early stage of internationalization the internationalizing firm faces increasing costs and liability of foreignness and so its performance suffers. As internationalization progresses benefits from economies of scale, global arbitrage, and accumulation of market power help in boosting performance. In the last stage, as firms internationalize beyond their optimal limit high coordination costs, limits to managerial capacity, and cultural and institutional diversity results in the performance to fall. In this study, we do not attempt to enrich the theoretical rationale behind ID or explain if there is a theoretical basis to predict any particular IDP relationship (Hennart, 2011). Our focus is to build on prior research to unpack the heterogeneity in firms’ ownership characteristics and examine their influence on the IDP relationship. We concur with past researchers that owners’ identity strongly influences firms’ strategies, particularly internationalization, and the effect they have on subsequent performance.

2.2 Ownership and International Diversification Corporate ownership has been studied utilizing multiple theories in multiple disciplines over the decades (Boyd & Solarino, 2016). Ownership represents the extent of equity holding by investors. Since the investors own a portion of the company, they reserve the right to voice opinions in matters critical for the successful governance of the company. In large firms where control is separated from ownership (Berle & Means, 1932), the owners need to govern the activities of those who actually run the firms on their behalf: the managers. Owners have one aspect in common: a desire for maximum returns from their investments. However, as noted earlier, owners represent wide heterogeneity. This heterogeneity necessitates paying attention to not only the extent of shareholding but also the identity of the owners. Gaur and Delios (2015, p. 236) cite studies that examine corporate ownership and outcomes at the firm level. They also note that not much research exists in understanding how ownership is associated with firms’ internationalization strategies. Prior studies examine how ownership affect internationalization (George, Wiklund, & Zahra, 2005) or how different the ownership types affects ID (Gomez-Mejia, Makri, & Kintana, 2010; Hautz et al., 2013; Tihanyi, Johnson, Hoskisson, & Hitt, 2003). But with the exception of Gaur and Delios (2015), not other researcher has investigated the implication of ownership on firms’ IDP. Given that ID is more complicated and risky compared to other firm-level strategies, it is essential to understand how ownership, and in particular owners’ identity, affects ID and its influence on firm performance. When firm’s ownership and control are separated, the former needs to monitor and govern the activities of managers (Connelly, Hoskisson, Tihanyi, & Certo, 2010; Delios et al., 2008). Two theoretical perspectives that scholars have used in the past to explain ownership and firm-level outcomes include RBV agency theory.

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Resource-Based View and Ownership

RBV suggests that firm’s ability to generate superior performance depends on the attributes of various tangible and intangible resources and capabilities possessed and utilized by it. RBV further suggests that a firm can generate sustained competitive advantage over its rivals if the assets it possesses are valuable, rare, inimitable, and non-substitutable (Barney, 1991). The importance of strategic resources has been highlighted in the internationalization literature as well. As noted earlier, firms’ owners are significantly heterogeneous in their resource endowments. It is essential that the owners help the firm with key resources when managers need them to aid in their strategy formulation and implementation. Resources that owners can provide include technical, organizational, and managerial expertise; external finance; strong domestic presence and networks; strong international exposure and networks, government connections; reputation, and capabilities to support and monitor strategic initiatives (George & Kabir, 2012; Hautz et al., 2013). Scholars have argued about these resources when discussing domestic and foreign ownerships. Family owners bestow a different type of resource—familiness—reflected in “a kin network such as common interest and identity, goal congruence, trust, and reciprocity” (Peng & Jiang, 2010, p. 259). These resources may become valuable and difficult-to-imitate especially during crisis situations and market downturns or when managers formulate critical growth strategies such as ID.

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Agency Theory and Ownership

Agency theory, the most widely used theoretical lens used in the domain of corporate governance, views the firm as a nexus of contracts between principals (owners) and agents (managers), suggests that monitoring of agents by principals may not be straightforward as the goals and risk preferences of the two parties may differ significantly. According to this theory, agents may be motivated to pursue strategies in ways that may not be in the best interest of shareholders’ value creation but geared toward personal benefits and empire building. Concentrated owners as principals will strive to keep such opportunistic agents in check and promote strategies that enhance return on investment and firm performance (Jensen & Meckling, 1976; Connelly et al., 2010; Filatotchev, Lien, & Piesse, 2005). The resulting agency problem becomes aggravated when agents have sizeable control over the assets invested by the principals, and when the information asymmetry between the two parties is high (Singla & George, 2013). According to this theory, agents may be motivated to engage in ID to build and control a larger firm (empire building) and gain associated benefits such as increased power, prestige, and managerial compensation (Jensen & Murphy, 1990), reduction in unemployment risks (Amihud & Lev, 1981). ID can also facilitate procuring better, higher-paying jobs in other firms or in the future by utilizing useful foreign experience (George & Kabir, 2012; Gaur & Delios, 2015). We argue that agency theory can help explain how differences in owners’ motivation and control may impact their influence on managers.

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Institutional Perspective and Ownership

The above theoretical perspectives when used in conjunction to explain ownership, strategy, and performance ignores firm’s institutional context in which it is embedded. This is where the importance of institutional perspective comes in. According to this perspective, firm’s strategy, and ultimate performance is governed by formal institutions (laws, rules, regulations) and informal institutions (norms, cultures, ethics) (Peng et al., 2009; North, 1990). Prior research suggests that while some countries (e.g., developed markets, such as USA, UK) are characterized by efficient institutions resulting in smooth functioning capital-, labor- and financial markets, others (typically emerging markets and, in particular, Asian countries) harbor underdeveloped or dysfunctional markets. The absence of transaction-facilitating intermediaries in emerging markets is known as ‘institutional voids’ (Khanna & Palepu, 2000; North, 1990; Young et al., 2008). Where efficient institutions prevail, owners’ interests are largely safeguarded by legal and regulatory institutions. External mechanisms such as competition for product market, managerial labor markets and takeover constraint exist as forces that discipline managerial behavior. In those settings, diluted or dispersed ownership is very common. However, in case of emerging markets where external governance mechanism is limited or ineffective, enforcing agency contracts or keeping managerial opportunism in check become costly as well as problematic (Dharwadkar, George, & Brandes, 2000; Heugens et al., 2009). Thus concentrated firm ownership as an internal corporate governance mechanism is more prevalent since preserving owners’ interests are difficult through dispersed ownership. By concentrating the equity holdings, investors gain the power and incentive to use their concentrated voting rights and exert direct influence on firms’ managers to run and manage the firm in their interest by eschewing managerial opportunism (La Porta, Lopez-deSilanes, & Shleifer, 1999; Peng & Jiang, 2010; Shleifer & Vishny, 1997). Internal governance through ownership concentration may be used to limit the extent of ID by self-serving managers. Based on the foregoing, we discuss how ownership concentration impacts the IDP relationship in the next section and develop our hypotheses.

3 Hypotheses Development 3.1 Family Ownership Family ownership refers to the proportion of shareholding by the founding family. In the extant literature, two related streams of the scholarship are evident. Prior research suggests that in many parts of the world, in particular Asia, members of the controlling family are often appointment as directors or top managers of firms (Heugens et al., 2009; Peng & Jiang, 2010). As noted earlier, family ownership fosters soft traits, such

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as trust, reciprocity, shared identity, and goal congruence among members. Family ownership may also facilitate access to unique technical, managerial, or financial resources. These are valuable resources that managers can use to aid crucial strategic moves. Accessing these resources becomes easier when the CEO of the firm is a member of the founding family or when the firm is part of a business group (Douma et al., 2006; Peng & Jiang, 2010). From RBV standpoint, family ownership can bestow on the managers assets that are family- and relationship-based.2 Prior research also suggests that having members of the founding family as top managers in the firm reduces agency problems. This happens owing to social control between principals and agents. Specifically, natural alignment of their goals and risk preferences occur as they originate from the same family. Agents remain aware of the emotions, sentiments, and informal linkages between them and the principals. Moreover, they understand the sensitivity surrounding the investment of family’s wealth in the business and the consequent risk–averse or conservative nature in undertaking critical strategies that might question firm’s survival. In addition, agents, being part of the same family, respects the long-term orientation of the principals (business continuity over generations) and the need to preserve family reputation in business (Fernández & Nieto, 2006: Young et al., 2008). As a result, agents typically refrain from engaging in strategic actions that displease their principals. We posit that agents’ engagement in ID results in two different perceptions in the principals’ mind. First, the negative perception of usual business risks associated with internationalization (Hitt et al., 2006) and the associated concerns of making changes in planning, processes, culture and control systems within the company, appointing non-family members with international experience in various levels of management, and dealing with possible relocation outside their home territories (Bhaumik et al., 2010; Fernández & Nieto, 2006; Sanchez-Bueno & Usero, 2014). Second, the positive perception of business benefits associated with foreign expansion including tapping new markets, leveraging capabilities, achieving economies of scale and scope and gaining competitive advantage. Because of the perceived risk-reward tradeoff, they will be “pulled in two opposite directions when making diversification decisions” (Gomez-Mejia et al., 2010, p. 224). We argue that despite the perceived risks of ID, the principals would support the agents in their ID initiative. There are several reasons for that. First, the opportunities of ID can be significant and the principals understand that engaging in ID can enhance their firms’ profit-potential, competitiveness, and reputation in the long run. Depending on the local context, ID may, in fact, allow them to escape the constraining institutional environment that does not facilitate suitable exploitation of resources (Kothari, Kotabe, & Murphy, 2013). Because they possess long-term orientation and are motivated to foster business continuity, the principals realize that ID can be a crucial initiative to achieve the same. They also realize that firm-level benefits of ID can enhance family wealth in the long run. 2 In the literature there exists a significant discussion on the impact of family ownership and control

on the firm. There is also a sizeable volume of scholarship on the dynamics of family firms. We draw from this voluminous literature only what is essential for the current study.

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Second, because the agents are part of the relationship network (familial, emotional, sentimental), the principals tend to believe that the agents’ actions for overseas expansion are not based on opportunism and self-serving thought-process. This trust that agents’ behavior is geared toward the betterment of the firm (and the family) makes it difficult for the principals to exercise vigilance and question the motives of ID. Thus, as opposed discouraging or opposing the ID initiatives, the principals encourage and support the agents to engage in successful ID. Third, principals understand that if for some reasons ID does not meet with the desired success, they can always compensate the loss by injecting more family wealth into the business. Moreover, they can engage in tunneling (Heugens et al., 2009) which involves bailing out underperforming businesses by transferring resources and profits from better-performing firms that they own. We posit that encouragement and support toward ID motivates the agents to formulate and implement ID in a manner that maximizes the performance of the firm. Goal alignment and subsequent supportive governance received from the principals incentivizes the agents to pursue ID more efficiently. Access to useful resources, reduced agency problem and supportive monitoring yields enhanced impact of ID on firm performance. The above rationale for the enhanced positive influence of ID on firm performance as a result of the presence of concentrated family ownership leads us to our last hypothesis. Hypothesis 1 Family ownership positively moderates the relationship between international diversification and firm performance.

3.2 Domestic Corporate Ownership Domestic corporate ownership refers to the shareholding by domestic non-financial corporations. Prior research (Douma et al., 2006; Filatotchev et al., 2005; George & Kabir, 2012; Ramaswamy, Li, & Veliyath, 2002) suggest that these firms are generally headed and run by qualified personnel who take a keen interest in the governance of firms that they invest in. The aforementioned scholars also posit that corporate owners generally possess long-term investment horizons and are able to provide managerial and technical guidance to the firms’ managers. From the RBV standpoint, these owners can be considered as useful sources of valuable knowledge, guidance, and support needed to devise strategic moves. Using their governance incentives and capabilities, the owners are likely to engage in efficient monitoring (as principals) and prevent non-value creating activities by the managers (agents) (Douma et al., 2006; Filatotchev et al., 2005, Filatotchev, Strange, Piesse, & Lien, 2007). The agents understand that large corporate ownership can foster takeover constraints and, therefore, they generally tend to refrain from indulging in empire building (Douma et al., 2006). But how do these owners influence the IDP relationship?

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We posit, drawing on agency theory and RBV-based rationale that this happens as follows. When agents engage in ID and attempt to improve firm performance by tapping overseas markets, the principals encourage them to do so and provide appropriate monitoring mechanisms that foster successful internationalization. This becomes possible as the principals are skilled, experienced personnel who view ID as a viable and value-creating growth strategy for the firm. The principals not only share their experience and skills with the agents but also provide appropriate guidance to maximize the positive outcomes of ID. Moreover, the principals exhibit a positive tendency to allocate appropriate financial, technological, and human resources that matches the scale and scope of ID as planned by the agents. Such positive governance and goal alignment with the principals additionally incentivizes the agents to ensure that firm’s international expansion and operations in foreign markets are handled in the best possible manner. Stated differently, the positive influence of ID on the firm is enhanced by the active support and monitoring provided by the principals to their agents. The rationale for escalated positive influence of ID on firm performance as a result of the presence of concentrated domestic corporate ownership leads us to the first hypotheses. Hypothesis 2 Domestic corporate ownership positively moderates the relationship between international diversification and firm performance.

3.3 Foreign Corporate Ownership This ownership refers to the shareholding by foreign non-financial corporations. Prior scholarship (George & Kabir, 2012; Heugens et al., 2009; Ramaswamy et al., 2002) suggests that foreign corporations often enter into contractual or strategic alliances with local firms with the anticipation of getting high financial returns from such associations. From RBV standpoint, foreign owners serve as useful repositories of valuable, and oftentimes, inimitable assets that they provide to the firm’s managers for strategic initiatives. These resources include capital, technology, managerial expertise, foreign experience and international ties. Moreover, these owners possess various organizational capabilities to monitor strategic moves that require high resource commitments in overseas markets. By utilizing such assets they are able to support and guide the managers to formulate and implement critical strategies such as ID. From the agency theory perspective, foreign corporate owners remain incentivized toward the active governance of their agents. Prior research (Ramaswamy et al., 2002; George & Kabir, 2012) has characterized these owners as pressure resistant as they can actively exercise their governance without any influence or fear of retribution from their agents. This happens as these investors do not have to depend solely on the local firms for profits and revenues. As a result, these principals possess firmer control over the strategic initiatives of their agents. Through valuable resource contribution

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and active governance foreign corporate owners are able to develop and share an intimate and unique relationship with their agents. How do foreign corporate owners impact IDP relationship? Drawing on the foregoing agency theoretic and RBV-based rationale we posit that this happens as follows. When agents engage in ID, the principals encourage them to do so and provide supportive monitoring and guidance. The latter share their accumulated international experience and expertise gained through operations in multiple countries. This not only helps in increased efficiency but also allows the prevention of costly mistakes associated with ID. Moreover, the principals arrange for appropriate financial, technological or human-resource-related resources to match the scale and scope of ID as planned by the agents. Such encouragement and positive governance incentivizes the agents to plan and execute ID in a manner that maximizes returns to the firm. The supportive governance and goal alignment received from the principals motivates the agents to pursue ID more efficiently. This translates into enhanced impact of ID on firm performance. Further, helpful handholding by the principals helps the agents to significantly avoid pitfalls of internationalization which manifests in improved performance. The rationale for enhanced positive influence of ID on firm performance as a result of the presence of concentrated foreign corporate ownership leads us to our second hypotheses. Hypothesis 3 Foreign corporate ownership positively moderates the relationship between international diversification and firm performance.

3.4 Domestic Financial Institutional Ownership Domestic financial institutional ownership refers to equity held by banks and various domestic financial institutions. A big portion of their income generates through interests from loans that they offer to local firms, or the fees they charge for rendering various financial services (Douma et al., 2006). Although these owners should ideally remain keen in ensuring efficient governance of their investee firms, that is not always the case. This is because existing business relationships with their investee firms makes them susceptible to managerial influence. Specifically, the dependence on investee firms places these owners in a very complex situation. Owing to this susceptibility, past research (e.g., Ramaswamy et al., 2002) has classified these owners as pressure-sensitive investors. From the RBV standpoint, these owners do not confer valuable resources to the managers since they typically do not possess knowledge, skills, and learning necessary to monitor and support corporate affairs (Douma et al., 2006; George & Kabir, 2012; Ramaswamy et al., 2002). Their inefficiency in governing strategic initiatives and firm performance does not provide support and guidance to managers in formulating and implementing critical strategies. From agency theoretic consideration,

8 How Does Ownership Type Influence International …

99

these owners serve as passive principals and do not exhibit proclivity to monitor the behavior of their agents. Such passiveness is acute in countries like India, where financial institutions are often fully or partially state-owned, and headed and managed by government officials (George & Kabir, 2012). For these officials, political and social outcomes of business have greater priority than heightened firm performance or value maximization. How do these owners impact IDP relationship? Drawing on the foregoing discussion, we posit that agents’ attempts to engage in ID are met with no encouragement or discouragement from the pressure-sensitive principals. This is because the intricacies associated with ID are not well comprehended by them. Specifically, they are not able to appreciate the gains and pains associated with ID and, therefore, have no incentive to actively monitor and promote/inhibit the international initiatives of agents. Their passiveness in monitoring agents’ activities is enhanced as these principals are more sensitive to political and social considerations (e.g., satisfying the mandates of the electorate) than firms’ value enhancement needs. We argue that the lack of resources contribution and passive monitoring of ID initiatives will not confer any significant influence by the domestic financial institutional owners on firms’ IDP relationship. Specifically, we do not expect any significant positive or negative influence on the IDP relationship resulting from the presence of these owners. Our next hypothesis is Hypothesis 4 Domestic financial institutional ownership has no significant influence on the relationship between international diversification and firm performance.

3.5 Foreign Financial Institutional Ownership As elaborated in Douma et al. (2006) and Heugens et al. (2009), the owners of foreign financial institutions invest in stocks and debentures of local firms (foreign portfolio investment) hoping that the financial instruments would do well in the capital market and increase the value of their investments over time. Unlike foreign corporations, foreign financial institutions typically have a shorter time horizon and they operate at arm’s length from the local firm’s management. They tend to be pressure-resistant investors (Douma et al., 2006) and do not depend only on the local firms for profits and revenues. These owners typically invest in a wide number of industries to accumulate benefits from a diverse portfolio. Owing to the government-mandated ceiling of investments in paid-up capital in a particular local firm, the stake maintained by a foreign financial institution is usually not very high. From the standpoint of RBV, these owners are not deemed to be useful repositories of valuable assets that can help and guide firm managers to formulate and implement critical strategies. Owing to their fragmented stake and shorter time horizon these owners hardly possess incentives to contribute to their investee firms by committing significant resources. Firm managers, therefore, do not expect to obtain much support

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through the access of valuable resources and capabilities of the owners. Viewed through the lens of agency theory, these owners act as financial return-focused, arm’s length principals who are not likely to monitor and control their agents’ behavior. Their main investment objective being high equity returns, these principals would rather sell their stake (if dissatisfied with their investments’ performance) than invest in time, energy, and effort to govern their agents, and monitor their agents’ strategies. Drawing on the foregoing RBV and agency-theory-based conceptualization we posit that when agents attempt to engage in ID to improve firm performance, they experience no guidance and monitoring from their principals in favor or disfavor of their strategic initiatives. Owing to the principals’ passiveness, the agents do whatever they can on their own to benefit their firm from ID. It is logical to believe that absence of asset contribution coupled with passive monitoring of ID initiatives will not yield any meaningful impact of foreign financial institutional owners on the performance implications of ID. More specifically, we do not expect any significant positive or negative influence on the IDP relationship resulting from the presence of these owners. Our next hypothesis is Hypothesis 5 Foreign financial institutional ownership has no significant influence on the relationship between international diversification and firm performance. The above discussion is highlighted in Table 1.

4 Research Methodology 4.1 Sample and Data Collection The unit of analysis in this study is firm-year observation. Our analysis is based on a sample of 1074 publicly listed Indian firms assessed over a 6 year time-span (2007– 2012). Temporal dimension is an important consideration in internationalization research (Thomas & Eden, 2004) and our analysis spanning multiple years gives us greater confidence in the results. India provides a natural setting for this study for three compelling reasons. First, posteconomic liberalization in 1991, Indian firms have engaged in significant ID whose scope and value were unthinkable in the earlier decades. Between 1990 and 2012, Indian OFDI increased more than 72-fold: from US$0.119 billion to US$8.583 billion (UNCTAD, 2013). Second, various types of ownership concentration that feature in the governance literature are well defined within Indian firms (Bhaumik et al., 2010; Douma et al., 2006; George & Kabir, 2012). Third, prior research on Indian firms has concluded a statistically significant IDP relationship (Gaur & Kumar, 2009; Gaur & Delios, 2015; Singla & George, 2013). Data for this study are drawn from Prowess 2012 database maintained by the Center for Monitoring the Indian Economy (CMIE). This database is compiled by using audited annual reports provided by the majority of public Indian companies and

– Provide managers of investee firms’ access to unique, trust- and relationship-based managerial, financial, and technical knowledge – Foster soft traits such as reciprocity, shared identity, and goal congruence between family and top managers – Not always capable to guide and monitor strategic initiatives, such as ID

Founding family

Domestic – Provide investee firms’ managers corporation access to valuable managerial, financial, and technical knowledge – Provide support for strategic initiatives including ID

RBV-based considerations

Ownership by

Influence on IDP

– Principals are skilled, experienced Positive personnel, and possess long-term investment horizons – Possess motivation and capabilities to monitor agents – Positive agent governance through support, encouragement, and monitoring results in goal alignment and reduced opportunistic behavior

– Principals are skilled and experienced Positive in domestic governance – Governance favors long-term orientation and business survival – Principals are motivated to encourage and support agents’ initiatives – May not be able to efficiently monitor and govern ID initiatives – Natural alignment of goals and risk preferences occur between principals and agents owing to the family connection

Agency theoretic considerations

Table 1 Resource-based and agency-theoretic considerations of ownership and international diversification

(continued)

Boyd and Solarino (2016), Douma et al. (2006), Gaur and Delios (2015), George and Kabir (2012), Ramaswamy et al. (2002)

Boyd and Solarino (2016), George and Kabir (2012), Hautz et al. (2013), Peng and Jiang (2010), Young et al. (2008)

Key studies

8 How Does Ownership Type Influence International … 101

– Do not provide investee firms’ managers access to technical and managerial knowledge, skills, and learning – Not capable to provide support for strategic initiatives including ID

Boyd and Solarino (2016), Douma et al. (2006), Gaur and Delios (2015), George and Kabir (2012), Ramaswamy et al. (2002)

Key studies

– Principals are pressure-sensitive Non-significant Boyd and Solarino (2016), George and – Principals do not exhibit proclivity to Kabir (2012), Ramaswamy et al. (2002), monitor agent behavior Tihanyi et al. (2003) – Political and social outcomes more important for principals – Principals are passive and not motivated in governing strategic initiatives and firm performance – Passive governance confers no significant influence on agent behavior (continued)

Influence on IDP

Domestic financial institutions

Agency theoretic considerations – Principals are pressure-resistant Positive – Possess motivation and capabilities to monitor agents – Share an intimate and unique relationship with agents – Positive agent governance through support, encouragement, and monitoring results in goal alignment and reduced opportunistic behavior

RBV-based considerations

Foreign – Provide investee firms’ managers corporation access to valuable capital, technology, managerial expertise, foreign experience, and international ties – Provide support for strategic initiatives including ID

Ownership by

Table 1 (continued)

102 S. Purakayastha and S. Lahiri

– Do not provide investee firms’ – Principals are pressure-sensitive managers access to valuable resources – Principals have shorter time-horizon, – Not capable to provide support for fragmented stakes, and operate at strategic initiatives including ID arm’s length (focus on financial returns) – Do not possess motivation in governing agent behavior – Passive governance confers no significant influence on agent behavior

Foreign financial institutions

Agency theoretic considerations

RBV-based considerations

Ownership by

Table 1 (continued) Key studies

Non-significant Boyd and Solarino (2016), Douma et al. (2006), George and Kabir (2012), Hautz et al. (2013),Ramaswamy et al. (2002), Tihanyi et al. (2003)

Influence on IDP

8 How Does Ownership Type Influence International … 103

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several foreign firms. Companies in the database account for a significant amount of corporate taxes and excise duty collected by the Indian government. Prowess database has been used in several prior studies of internationalization (e.g., Elango & Pattnaik, 2007; Gaur & Delios, 2015; Pattnaik & Elango, 2009). Following these scholars, we focused on manufacturing firms whose details were available for our study period 2007–2012. The firms needed to have sales of at least 63 million Indian rupees (roughly US$1.0 million). Firms below this sales threshold are likely to be small and unlikely to expand overseas directly, that is, without the help of intermediary firms. We eliminated all firms that had missing values. These restrictions resulted in a sample of 1074 firms with 6444 observations. We constructed a panel data set comprising of 4437 firm-year observations.

4.2 Dependent Variable Following previous works, we measured firm performance as a return on assets (ROA). ROA was operationalized as Profit before depreciation, interest, and tax (PBDITA)/Total Assets.

4.2.1

Independent Variable

The independent variable of this study is the degree of internationalization diversification (ID). Following past research (Capar & Kotabe, 2003; Gaur & Delios, 2015), we operationalized ID using foreign sales to total sales (FSTS).

4.2.2

Ownership Variables

Five ownership variables are used in this study. We operationalized them following prior research (George & Kabir, 2012). We measured family ownership (FAM) as the proportion of shareholding by the founding family. Domestic corporate ownership (DOMC) was measured as the proportion of shareholding by domestic nonfinancial corporations. Foreign corporate ownership (FORC) was measured as the proportion of shareholding by foreign non-financial corporations. Domestic financial institutional ownership (DOMI) was measured as the proportion of shareholding by domestic financial institutions. Finally, we measured foreign financial institutional ownership (FORI) as the proportion of shareholding by foreign financial institutions.

8 How Does Ownership Type Influence International …

4.2.3

105

Control Variables

In accordance with prior studies, we included several control variables in our analysis to improve model estimation. Firm age (AGE) was measured as the number of years from the date of incorporation of the firm. Firm size (SIZE) was measured as the natural logarithm of sales. We included leverage (LEV) (measured as debt over total assets) to control for the financial health of the company.

4.2.4

Controlling for Endogeneity

As firm’s internationalization strategies are determined endogenously, it was essential that we control for endogeneity in this study. Past research suggests that nonspecification of endogeneity can lead to spurious performance outcomes (Brouthers, 2002; Reeb, Sakakibara, & Mahmood, 2012). Our study controlled for endogeneity through a two-stage least squares (2SLS) regression process: the approach that relies on instrumental variables (IVs) (Campa & Kedia, 2002; Reeb et al., 2012). It involved using all the exogenous variables as explanatory variables in the first stage followed by using the fitted value from the first stage as an instrument for the degree of internationalization variable in the second stage. A significant challenge in using 2SLS process is identifying rational IVs, that is, variables that are correlated with the degree of internationalization but not with the error term of the second-stage regression. Following Campa and Kedia (2002), we identified three sets of IVs that can affect internationalization: industry, time, and firm characteristics. The industry IVs captures the attractiveness of the industry in fostering internationalization. If an industry is populated by firms that have internationalized, then firms with even average resource portfolio in that industry will have high incentives to internationalize. We used two industry IVs: the proportion of foreign sales generated by firms in the industry (PSIN), and the proportion of firms that have foreign sales in the industry (PNIN). Time effects were captured through trends in macroeconomic conditions. For this, we included the number of quarters in a given year when India’s GDP contracted (RECESSION). We posit that firms desist from internationalization during economic recessions. Finally, for firm characteristics IVs, we included (a) BSE500 (a dummy variable that takes the value of 1 if the firm is listed in S&P BSE 500 Index, and 0 otherwise), and (b) GDR (a dummy variable that is equal to 1 if the firm has a global depositary receipt listed on a foreign stock exchange, and 0 otherwise). We posit that if a firm has access to capital markets, either locally or abroad, it will be easier to raise capital and finance internationalization. We also included firm age, size, and years in the first stage regression. We used the Hausman Statistic to decide between fixed and random effects. As the Hausman Statistic for both the stages are significant, we use fixed effects estimation (Wooldridge, 2010).

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4.3 Results Table 2 reports descriptive statistics and correlations of the study variables. Review of bivariate correlation values indicates that there is no concern for multicollinearity as the correlations are not very high. Additionally, we computed Variance Inflation Factors (VIFs) and found them all to be below the rule-of-thumb cutoff value 10. The VIF values ranged from 1.007 to 3.363. Table 3 present the results of the second stage of 2SLS.3 Our Hypothesis 1 predicts that FAM positively moderates the IDP relationship. The positive and statistically significant regression coefficient (β = 0.004, p < 0.05) of the interaction term (ID x FAM) in Model 2 of Table 3 suggests support for the hypothesis. Hypothesis 2 predicts that DOMC positively moderates the IDP relationship. The positive and statistically significant regression coefficient (β = 0.005, p < 0.01) of the interaction term (ID x DOMC) in Model 3 lends support to the hypothesis. The positive moderating effect of FORC was predicted in Hypothesis 3. This hypothesis is not supported as the coefficient of the interaction term (ID x FORC) in Model 4 is significant but in the reverse direction (β = − 0.006, p < 0.01). Hypothesis 4 predicts that DOMI does not have any significant influence on IDP. The non-significant coefficient (β = − 0.000, ns) for the interaction term (ID x DOMI) in Model 5 lends support to the hypothesis. Finally, FORI is predicted to possess no significant impact on IDP. This hypothesis is supported as the beta coefficient is negative but statistically non-significant (β = − 0.003, ns) for ID x DOMI interaction in Model 6. Taken together our findings suggest support for all but one hypothesis.

5 Discussion and Conclusion This study, based on the integration of agency theory, RBV and institutional perspective, makes several contributions. First, the study demonstrates that concentrated ownerships does impact firms’ IDP relationship, but in different ways. This is an important contribution as prior scholarship, barring Gaur and Delios (2015), did not engage in insightful studies combining IDP and ownership, thereby implicitly assuming that ownership has little or no role to play, or different ownerships affect IDP similarly. Our results clearly suggest that this is not the case. This study finds that family ownership influences firms’ IDP relationship positively. This finding highlights that despite the generally understood risk-averse nature of family ownership as far as internationalization is concerned, they do provide resources and positive support toward ID initiatives that buoys managerial efforts to increase firm performance. 3 We

tested for curvilinear relationship by entering in the analysis squared ID. The resulting coefficient was statistically non-significant. We, therefore, ruled out evidence of the curvilinear relationship between ID and firm performance.

Firm age (AGE)

Firm size (SIZE)

Leverage (LEV)

Degree of internationalization (ID)

Family ownership (FAM)

Domestic corporate ownership (DOMC)

Domestic financial institutional ownership (DOMI)

Foreign corporate ownership (FORC)

Foreign financial institutional ownership (FORI)

2

3

4

5

6

7

8

9

10

0.033

0.019

0.039

0.247

0.165

0.257

0.336

8.012

32.171

0.135

Mean

0.065

0.076

0.063

0.236

0.214

0.270

0.197

1.536

19.001

0.078

S.D.

0.051*

0.002 0.053*

0.450*

0.091*

−0.001

0.274*

−0.139*

0.443*

0.167*

−0.029

1 −0.103*

3

0.293*

−0.118*

−0.015

0.060*

−0.178*

0.065*

0.0147* −0.129*

1

−0.346*

0.046*

1

2

0.170*

1

on a sample of 4437 firm-year observations during 2007–2012 Significance levels (two-tailed) tests: * p < 0.05 Source: Authors

a Based

Firm performance (ROA)

1

Variables

Table 2 Descriptive statistics and correlationsa

0.016 0.009

−0.002 −0.050*

−0.057*

−0.033*

0.092*

1

−0.096*

0.001

0.069*

5

0.096*

4

1

−0.007

−0.098*

−0.078*

−0.175*

6

0.211*

0.004

0.316*

1

7

0.372*

0.069*

1

8

0.039*

1

9

1

10

8 How Does Ownership Type Influence International … 107

0.001

0.003

0.010

0.001

0.027***

−0.196***

0.544***

AGE

SIZE

LEV

ID

0.036

0.036

−0.054

−0.032

DOMI

FORI

2008

Year

ID x FORI

ID x DOMI

ID x FORC

ID x DOMC

0.002

0.064

−0.054

FORC

−0.011***

0.016

−0.016

DOMC

ID x FAM

0.017

−0.004

FAM

0.111

0.035

Constant −0.171***

−0.011***

0.007**

−0.031

−0.053

−0.042

−0.016

−0.013

0.581***

−0.197***

0.027***

0.001*

−0.175***

Model 2

B

B

S.E

Model 1 S.E

0.003

0.003

0.036

0.036

0.064

0.016

0.017

0.112

0.010

0.003

0.000

0.035

−0.011***

0.001*

−0.031

−0.053

−0.052

−0.015

−0.004

0.543***

−0.196***

0.027***

0.002

−0.171***

B

Model 3 S.E

0.003

0.000

0.036

0.036

0.064

0.016

0.017

0.111

0.010

0.003

0.002

0.035

−0.011***

0.007**

−0.028

−0.054

−0.079

−0.017

−0.005

0.546***

−0.196***

0.027***

0.001*

−0.169***

B

Model 4 S.E

0.002

0.003

0.036

0.036

0.064

0.016

0.017

0.111

0.009

0.003

0.000

0.035

−0.011***

0.004

−0.031

−0.053

−0.053

−0.016

−0.004

0.3**

−0.196***

0.027***

0.001*

−0.171***

B

Model 5 S.E

0.002

0.020

0.036

0.037

0.064

0.016

0.017

0.111

0.009

0.003

0.000

0.035

−0.011***

−0.002

−0.015

−0.054

−0.058

−0.016

−0.004

0.548***

−0.197***

0.027***

0.001

−0.170***

B

Model 6

Table 3 Regression results for international diversification, ownership, and firm performance (Second stage of 2SLS: Fixed effects estimation)

0.003

0.002

0.039

0.036

0.064

0.016

0.017

0.111

0.009

0.003

0.001

0.035

(continued)

S.E

108 S. Purakayastha and S. Lahiri

0.005

−0.052***

2012

4437

No. of obs.

S.E

0.005

0.005

0.004

0.003

Model 3

4437

133.04***

50.42***

0.177

0.052***

−0.033***

−0.016***

−0.029***

B

S.E. Standard error Significance levels (two-tailed) tests: *** p < 0.01; ** p < 0.05; * p < 0.10 Source: Authors

4437

50.93***

137.85***

54.00***

0.178

−0.052***

−0.033***

−0.016***

−0.029***

Hausman 133.85*** Statistic

F Stat

0.005

−0.034***

2011

0.176

0.004

−0.017***

2010

Adj. R2

0.003

−0.029***

2009

Model 2

B

B

S.E

Model 1

Table 3 (continued) S.E

0.005

0.005

0.004

0.003

Model 4

4437

142.06***

50.87***

0.178

−0.052***

−0.033***

−0.016***

−0.029***

B

S.E

0.005

0.005

0.004

0.003

Model 5

4437

136.93***

50.39***

0.177

−0.052***

−0.033***

−0.016***

−0.029***

B

S.E

0.005

0.004

0.003

0.003

Model 6

4437

133.96***

50.50***

0.178

−0.052***

−0.034***

−0.017***

−0.029***

B

S.E

0.005

0.005

0.004

0.003

8 How Does Ownership Type Influence International … 109

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S. Purakayastha and S. Lahiri

Given our sample represents large and relatively mature Indian firms from a wide variety of industries, it is possible that members of the controlling families of those firms do understand the importance of ID in current business circumstances, and may have witnessed many firms’ successful internationalization since India’s economic liberalization in early 1990s (George & Kabir, 2012, Singla & George, 2013). Therefore, instead of shying away from ID and focusing only on domestic opportunities, they extend resources and support to their managers to engage in successful ID and derivation of maximum benefits. Our finding helps connect two streams of current research: (a) how family ownership impacts internationalization (Bhaumik et al., 2010; Fernández & Nieto, 2006; Sanchez-Bueno & Usero, 2014) and (b) how family ownership impacts firm performance (Anderson & Reeb, 2003; Chu, 2011; Lee, 2006). This study also finds that ownership by domestic corporations impacts the IDP relationship positively. This reiterates our rationale that corporate owners tend to support and suitably monitor ID as they are generally skilled and experienced, and possess incentives to utilize their governing capabilities. Our finding is new in the context of IDP but ties in well with past corporate diversification research (Douma et al., 2006; George & Kabir, 2012). In addition, this study finds that ownership by foreign corporations negatively influences the IDP relationship. This is a little surprising as it goes against our logic that resourcefulness, support, and positive governance coming from pressure-resistant foreign corporations create a positive impact on the IDP relationship. The positive impact of ID on firm performance (model 4) becomes negative in the presence of FORC probably because foreign owners do not feel encouraged to provide guidance and monitoring when Indian firms implement internationalization in terms of exports. The owners probably desire that their agents pursue serious and more value-creating internationalization by committing more assets abroad or engaging in FDI than just focusing on higher foreign sales (Singla & George, 2013). Another reason could be that these owners are more interested in exploiting domestic (Indian) market opportunities than those that exist in overseas locations. But more analysis is needed to more clearly understand the reason behind the result. Further, this study finds that ownership by domestic financial institutions provide no statistically significant effect on the IDP relationship. Our rationale that politically and socially driven pressure-sensitive domestic institutional owners are not likely to efficiently govern managers’ ID initiatives and, thereby, not likely to positively impact firm performance is validated. In a way, this finding corroborates prior research (Filatotchev et al., 2005; Lien & Li, 2013). Finally, this study finds that that ownership by foreign financial institutions does not influence the IDP relationship meaningfully. This supports our logic that because of fragmented stake, shorter time horizon and subsequent low incentives and rewards to engage in active governance, foreign institutional ownership does not contribute toward firm’s performance enhancement through ID. This result also supports prior literature. It is to be noted that although these findings are essentially the same (no influence on IDP), the theoretical rationales are different. This is similar to what we see in the work of Tihanyi and colleagues (2003) who use different theoretical rationales to explain the positive

8 How Does Ownership Type Influence International …

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association of ID with different institutional ownerships: professional investment funds and pension funds. Gaur and Delios (2015, p. 236) lamented that “…..our understanding of how different stakeholders affect internationalization decisions and related performance consequences remains limited…”. Few years ago Hautz and colleagues (2013, p. 105) expressed a similar feelings. They observed that “… the findings of previous studies thus reinforce the need to consider in more detail the potential differences in the way various types of owners relate to the pursuit of diversification strategies”. Our study helps to address their calls for more research by offering findings that are new to the literature. To the best of our knowledge, no study before has analyzed the influence of five ownership type on IDP. Our above discussion leads us to conclude that to benefit from IDP, firms should possess (a) high shareholding by family ownership and domestic corporate ownership, and (b) less shareholding by domestic- and foreign financial institutions, and foreign corporations. These findings contribute to firms’ internationalization literature as well as literature on corporate governance. A common problem in business research involving large sample relates to the generation of low correlation or regression coefficients with high statistical significance. This is evident in our reported results too. Problems resulting from a large sample, low/small effect size and high power can call into question construct validity and relevance of findings (Combs, 2010; Ellis, 2010). Combs (2010, p. 9) notes that firm-level studies generally generate smaller effects. One way to mitigate this problem is to predetermine (during the research design stage) the study’s sample size. In our case, we relied on secondary data for hypotheses testing and, therefore, it was not possible to predetermine or target any appropriate sample size. We also did not have any expectations about effect sizes or requirements for statistical power. We culled every valid data point that was available in the secondary database for our analysis. Despite the low coefficients, our large sample enabled detecting important and real relationships. Since we operationalized the study constructs using measures from prior literature, we are confident about construct validity and interpretations of various findings. In addition, this study contributes to research by focusing on emerging market firms. In the context of emerging markets, ownership has been studied in relation to business-group and firm performance (Douma et al., 2006), firm’s propensity to diversify (Ramaswamy et al., 2002), outward FDI (Bhaumik et al., 2010), corporate diversification and firm performance (George & Kabir, 2012; Lien & Li, 2013), etc. However, how ownership concentration in emerging market firms influence their IDP relationship has not been adequately examined thus far. In this regard Gaur and Delios (2015, p. 237) note that “[a]bsent from this research stream is any consideration of the importance of the governance structure or its effect on internationalization by firms in emerging economies.” Our study contributes by addressing this crucial research gap. In a recent review article on ownership of corporations, Boyd and Solarino (2016, p. 9) note that “[e]merging markets accounted for 40% of all samples in the last decade, with mainland China becoming the most frequently studied location for ownership issues.” Our study adds to the existing knowledge of internationalization of firms from India in

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particular, and emerging markets in general. Finally, our study extends the integrated use of three dominant theories in the context of emerging markets.

6 Managerial Implications This study has several implications for practice. Managers contemplating overseas expansion need to understand that ID does not always result in higher performance. Specifically, other things being equal, ID can result in poor performance of firms if not properly governed. But some forms of equity ownership (e.g., those held by domestic corporations and founding family) can result in a positive impact that can lead to higher performance by overcoming the negative influence of ID. Relatedly, managers need to understand that different owners have different preferences, timelines, monitoring capabilities, and incentives. Some owners are pressure-sensitive others are pressure-resistant. These differences generate different styles of governance. It is essential for the managers to understand various governance mechanisms and formulate international strategies that align their interests with owners that favor or support ID. Since the current study results indicated that foreign corporate ownership, and domestic- and foreign institutional ownership does not positively influence ID relationship we urge these owners to modify their perceptions about internationalization and try to create win–win situation for themselves as well as their agents. This can be done by engaging in governance that favors ID initiatives by the managers. In today’s globalized world where firms, large and small, attempt to go international and benefit from the opportunities in foreign locations, owners should strive to learn about the advantages of ID and encourage its practice. Specifically, foreign corporate owners should understand their investee firms’ needs and current state of internationalization and provide support and courage to undertake FDI by going beyond exports. Domestic institutional owners need to realize that if their investee firms increase profitability by doing well internationally, they (owners) will be able to satisfy their social mandates even better. Thus they should learn about the intricacies of ID and encourage its practice as best as possible. Foreign institutional owners need to do the same thing. By developing learning about ID, they will be in a better position to govern ID and in the process earn better returns on their investments. In sum, the above owners should be incentivized to favor ID and provide appropriate guidance and support to the firm’s managers.

7 Limitations and Further Research Directions Our study has limitations that open up avenues for additional research. First, the study is based on a 6-year time-frame. Although this lends credence and greater validity when compared to a single-year based research, running similar moderating analysis

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using longer time frames may generate more fine-grained results. Future research, therefore, needs to execute similar studies utilizing time-periods that are different and longer than the current period. Second, the study utilizes archival data of firms from only one country. This can limit the generalizability of study findings since the results may have been affected by India’s idiosyncratic institutional, agency theoretic and other country-of-origin attributes (Bhaumik et al., 2010; Gaur & Kumar, 2009; Lahiri, Elango, & Kundu, 2014). In future, similar research should be done for firms from other locations, both developed and emerging markets. Third, future research, building on Gaur and Delios (2015), should examine if the influence of various ownerships vary depending on whether the focal firm is affiliated to a business-group or is an independent entity. Business-groups are a dominant organizational form in India and investigating the influence of groupaffiliation will enrich our understanding of the impact of ownership on IDP. Finally, future research needs to engage in fine-grain analysis of how ownership type impact IDP relationship for (a) low and high levels of ID and (b) the increasing extent of ownership concentration.

Appendix: Definition and Sources of Study Variables

Variables

Definition

Sources

ROA = Profit before depreciation, interest, and tax over total assets

Prowess

International diversification (ID)

Foreign sales to total sales

Prowess, annual report of firms, business magazines, and websites

Family ownership (FAM)

Proportion of shareholding by the founding family

Prowess

Domestic corporate ownership (DOMC)

Proportion of shareholding by domestic non-financial corporations

Prowess

Foreign corporate ownership (FORC)

Proportion of shareholding by foreign non-financial corporations

Prowess

Domestic financial institutions (DOMI)

Proportion of shareholding by Prowess domestic financial corporations

Dependent variable Firm performance

Independent variable

Foreign financial Institutional Proportion of shareholding by ownership (FORI) foreign financial corporations

Prowess

Instrumental variables (continued)

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(continued) Variables

Definition

Sources

PSIN

Proportion of foreign sales to total sales generated by firms in a particular industry

Prowess

PNIN

Proportion of number of firms that have foreign sales to total firms in a particular industry

Prowess

RECESSION

Number of quarters in a given year when India’s GDP contracted

RBI website and Country Report, Economist Intelligence Unit

BSE 500

Dummy variable that takes the Prowess value of one if the firm is listed in S&P BSE 500 Index, zero otherwise

GDR

Dummy variable that takes the Prowess value of one if the firm has a global depository receipt listed on a foreign stock exchange, zero otherwise

Control variables Firm Age (AGE)

Number of years from the date Prowess of the incorporation of the firm

Firm Size (SIZE)

Natural logarithm of sales

Firm Leverage (LEVERAGE) Ratio of debt to total assets

Prowess Prowess

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Reeb, D. M., Sakakibara, M., & Mahmood, I. P. (2012). From the editors: Endogeneity in international business research. Journal of International Business Studies, 43(3), 211–218. Rugman, A. M. (1976). Risk reduction by international diversification. Journal of International Business Studies, 7(2), 75–80. Sanchez-Bueno, M. J., & Usero, B. (2014). How may the nature of family firms explain the decisions concerning international diversification? Journal of Business Research, 67(7), 1311–1320. Shleifer, A., & Vishny, R. (1997). A survey of corporate governance. Journal of Finance, 52(2), 737–783. Siddharthan, N. S., & Lall, S. (1982). Recent growth of the largest US multinationals. Oxford Bulletin of Economics and Statistics. Singla, C., & George, R. (2013). Internationalization and performance: A contextual analysis of Indian firms. Journal of Business Research, 66(12), 2500–2505. Tallman, S., & Li, J. (1996). Effects of international diversity and product diversity on the performance of multinational firms. Academy of Management Journal, 39(1), 179–196. Thomas, D. E., & Eden, L. (2004). What is the shape of the multinationality-performance relationship?Multinational Business Review, 12(1), 89–110. Tihanyi, L., Johnson, R. A., Hoskisson, R. E., & Hitt, M. A. (2003). Institutional ownership differences and international diversification: The effects of boards of directors and technological opportunity. Academy of Management Journal, 46(2), 195–211. UNCTAD. (2013). FDI outflows, by region and economy, 1990–2012. Geneva: United Nations. Woolridge, J. M. (2010). Econometric analysis of cross section and panel data (2nd ed.). Cambridge, MA: MIT Press. Yang, Y., & Driffield, N. (2012). Multinationality-performance relationship. Management International Review, 52(1), 23–47.

Saptarshi Purkayastha (Ph.D., ICFAI University) is an Associate Professor of Strategy at the Indian Institute of Management, Calcutta. His primary research interest is in investigating the effectiveness of business groups with a focus on internationalization and role of top management. His research has been published in the International Journal of Management Reviews, Journal of Business Research and other pretigious journals. Somnath Lahiri received Ph.D. in Business Administration from the University of Memphis, USA in 2007. His teaching and research interests are in the areas of Strategic Management, International Management and International Business. At Illinois State University Dr. Lahiri has taught several courses including Advanced Organizational Strategy (MBA), Organizational Strategy (Capstone Undergraduate), International Management, Understanding the Global Business Environment, Competing in Emerging Markets, and Business Organization and Management. Dr. Lahiri has made several national and international conference presentations, and his publications have appeared in well-known journals including the Asia Pacific Journal of Management, Business Horizons, Canadian Journal of Administrative Sciences, European Business Review, European Management Journal, International Business Review, International Journal of Management Reviews, Journal of Business Research, Journal of International Management, Journal of World Business, Management Decision, Management International Review, R&D Management and Thunderbird International Business Review.

Chapter 9

Institutional Arrangements and Inter-Organizational Governance in Services Companies Ramya Venkateswaran

1 Introduction Have you ever wondered, why does a company based in the United States go in for a joint venture in China, but choose to have a 100% subsidiary in India and a long-term contract model in Vietnam with a seemingly identical purpose? Why does an Indian company such as Wipro, despite being a late-mover, disadvantaged entrant into the foreign market, and with little international experience, choose to go full steam and acquire a “string-of-pearls”1 of several acquisitions, while you might have expected it to be somewhat risk-averse? Or the COO of TCS stating in April 2019: “we continue to remain open and hungry for acquisitions”2 ? What are the factors that determine the institutional arrangements between the headquarters and the subsidiary created in the host country, and the inter-organizational modes of governance adopted with partner organizations, by which services companies organize their business in international locations? What considerations influence this critical decision that can determine the international success and failure of firms. These and other related questions are the subject matter of this chapter. The entry strategy into another country is a set of complex decisions, of which the institutional arrangement or inter-organizational governance form, or equivalently the “mode of entry” into the host country is of a strategic nature and carries implications for the performance of the firm. This decision is a complex one, given several

1 An

approach focused on buying several small-medium sized companies that are a strategic fit. Operating Officer N. Ganapathy Subramaniam on TCS acquiring W12 and BridgePoint Group: “We continue to remain open and hungry for acquisitions”. Source: https://www.livemint. com/industry/infotech/tcs-says-hungry-for-acquisitions-eyes-further-acceleration-in-growth-155 5251237293.html.

2 Chief

R. Venkateswaran (B) Indian Institute of Management Calcutta, Kolkata, India e-mail: [email protected] © Springer Nature Singapore Pte Ltd. 2020 A. Adhikari (ed.), Services Marketing Issues in Emerging Economies, https://doi.org/10.1007/978-981-15-8787-0_9

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factors that influence it. A range of entry mode options is available to choose from, depending on the set of feasible modes permitted in the host country. Many of the theoretical perspectives that have been offered by the literature are derived from studies that used datasets of companies from developed economies. Do these theories apply to companies located in emerging economies? Are there alternative theoretical perspectives that can inform us of the phenomenon of less experienced firms from emerging economies making successful strides toward making large commitments in international markets? In this chapter, we compare the industrywise data on institutional arrangements made by services companies from developed economies with that of companies from emerging economies. The chapter concludes with recommendations on important factors to consider while making a systematic decision on institutional arrangements.

2 Institutional Arrangements and Inter-Organizational Governance 2.1 The Decision Context for Internationalization As an antecedent to the decision on the institutional arrangement for international business, companies need to ascertain their motivation and readiness for internationalization, although in practice this is often a decision that firms reflect upon later. Internationalization may begin as a result of reacting to an unsolicited or accidental customer order (Root 1994). Companies may have a range of motivations: market seeking being the most common, to efficiency-seeking, innovation-seeking, resource-seeking, risk diversification, or sometimes as a competitive move either for first-mover advantages or as a response to competitive moves. Services companies typically tend to follow their customers into newer geographical locations. Sometimes companies may also choose to enter a location for the purpose of building capabilities. Readiness entails an internal check on the intrinsic global nature of the products/services that are planned to be sold abroad. Not all products/services are truly global, many are idiosyncratic to a particular location or culture of a society. Hence the company needs to decide which of its products/services/customer segments it wants to internationalize. A very important decision to be made next is the location decision of internationalization: which country, or countries, should the company enter? The choice of location is closely tied with the choice of the institutional arrangement, because certain countries may limit the permissible range of options for institutional arrangements. Some countries may insist on joint ventures in certain industries, some others may restrict the level of foreign ownership in certain industries. Country risk is an important factor in the location decision. Risks are stratified into four levels (Root 1994). Countries that are affected by strife, external aggression, or other situations of chaos are naturally avoided by most companies. At the next level is the threat of

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ownership/control expropriation: governments may sometimes take drastic decisions to nationalize or privatize and force multinational companies into coerced sales or contracts. The third level of risk is related constraints that might limit the efficiency of operations in another country, and finally, there is a risk in the transfer of profits based on repatriation/taxation laws or exchange rate volatility. Companies generally factor the latter three risks by discounting their internal rates of return from these investments. The timing of entry is critical to the entry strategy, depending on whether the first mover or late mover approach presents advantages. If the company has chosen multiple locations, it may also choose whether to enter simultaneously or sequentially. The crux of the entry strategy revolves around the decision on what entry mode to adopt. The choice of mode is critical to the performance of the firm in the international location (Brouthers and Hennart 2007). Should the company partner with a domestic company or go at it alone? If partnering, partner with whom? This decision is the topic of this chapter. In addition, the entry strategy decision context also involves related choices on how to establish the headquarter-subsidiary structure and relationships, marketing decisions on advertising and promotions suited to the host location, and whether to staff the foreign entity with expatriates/foreign employees or locals.

2.2 Modes of Governance 2.2.1

Institutional Arrangements Within Organizations

A range of feasible options is possible for products and services companies (Root 1994: 6). Export entry modes can be through direct agent/distributor or direct branch/subsidiary. Investment-based entry modes include ownership-based modes, such as sole venture—new establishment (greenfield), sole venture—acquisition (brownfield), joint venture either as new establishment or as acquisition.

2.2.2

Inter-Organizational Governance Forms Between Organizations

Contractual entry modes/non-equity modes between organizations range from licensing, franchising, technical agreements, service contracts, management contracts, construction/turnkey contracts, contract manufacture, co-production agreements, and similar other arrangements. Investment-based entry modes include ownership-based modes, such as partial ownership, joint venture either as new establishment or through acquisition. The choice of the partner is a critical decision in such a scenario, as the partner must bring in key complementary capabilities that the home company lacks in, and similarly, the home company must be able to offer key capabilities that the partner company has a deficit in. The contract between the two companies has to be drafted

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carefully and is often a long-drawn process since many situations of conflict may arise and have to be envisaged in advance. The protection of intellectual property rights in the host country becomes relevant in this situation.

3 Determining the Mode of Governance for Firms from Developed Countries Transaction cost theory is the dominant perspective that has been used to explain the mode of governance, in addition to other theoretical approaches, such as institutional and resource-based theories. The general attributes of transactions that influence mode choice are asset specificity, environmental uncertainty and behavioral uncertainty. Brouthers and Brouthers (2003) have argued that these attributes might affect services firms differently from manufacturing firms. Unlike manufacturing firms that are investment intensive, where high environmental uncertainties and risk propensity influence mode choices, in the case of services firms, it is behavioral uncertainty, trust propensity, and asset specificity that influence service providers’ entry mode choices due to the people-intensive nature of services. Services tend to be people-intensive, and their competitive advantage is usually derived from idiosyncratic assets such as professional skills, customization, and specialised know-how, and hence asset investments are made in training and knowledge (Brouthers and Brouthers 2003; Erramilli and Rao 1993). Datta et al. (2002) have summarized the multi-level determinants of the entry mode decision into five streams of antecedents: home firm, industry, and country conditions; host firm, industry, and country conditions; country differences such as cultural distance and institutional distance, venture characteristics and global conditions. In addition, multinational experience (number of countries the MNC has a presence in) and international experience (duration of experience in a particular country) have a significant influence on mode choice. A learning perspective, known as the Uppsala model, was proposed based on the study of Swedish firms (Johanson and Vahlne 1977, 2006) as a slow, stage-by-stage evolutionary process through which firms internationalize, by assimilating knowledge about foreign markets, through operations, and incrementally increase their degree of commitment to international markets. Erramilli and Rao (1993) modified transaction cost theory to propose that services firms will start with high commitment modes by default, unlike small investments made by manufacturing firms, a reason being the inseparability of provider and receiver in services.

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3.1 Practical Considerations for Managers Managers from developed economies consider host country risk as a very important practical factor in deciding the degree of commitment. Root reports that in a study of “hot.” “moderate,” and “cold” countries ranked in terms of 56 parameters related to country stability, managers made significantly lesser degrees of commitment in cold (mostly developing) countries and much higher in hot (developed) countries. Important practical considerations include the feasible set of modes permitted in a particular country for the particular target industry; international trade relations and political economy; the availability of suitable and trustworthy partners to transact with; the strategic objectives to be achieved through the transaction; the firm’s source of competitive advantage; risk propensity of the manager; non-strategic objectives and the level of control required depending on the nature of assets involved in the transaction. According to Root (1994), a systematic way of making this decision would be to assess the comparative profit contribution potential from a range of modes and select the best one. In the case of firms entering emerging economies, practical considerations include land acquisition challenges for greenfield, availability of tax incentives in special economic zones, ability to deal with contract laws, the trustworthiness of partners, and importantly protection for intellectual property rights. Tax havens and ease of doing business serve the role of practically reducing transaction costs.

4 Determining the Mode of Governance for Firms from Emerging Markets Mathews (2002) and Mathews (2006) studied latecomer Asia–Pacific firms in the global arena and proposed the LLL framework as a unique theory for emerging market multinational company’s internationalization that these companies overcame competitive disadvantages through linkage with wider production networks and incumbent firms in developed economies, leveraging their existing least-rare and most transferable resources to exploit the linkages established, and learning through repeated applications of linkage and leverage. Luo and Tung (2007) proposed the springboard perspective wherein international expansion acts as a springboard for EMNC firms to acquire strategic assets from developed countries, which they are unable to acquire in the home country due to institutional and market constraints. EMNCs are resource-poor and face latecomer disadvantages in the international arena, and they try to offset this disadvantage by an aggressive accumulation of strategic assets through foreign acquisitions.

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Buckley et al. (2016) combine perspectives from the Uppsala model and the Global Factory model to explain that Indian multinational enterprises possess “interface competence” that helps them to integrate in-house resources with the experiential market knowledge and externally sourced technological knowledge while undertaking cross-border acquisitions.

4.1 Practical Considerations for Managers Managers from firms in emerging economies entering developed economies have asset seeking strategic motives, and they are seen to possess much higher risk propensity, often due to affiliation with powerful business groups. Asset exploitation may also necessitate a greater degree of control and hence higher commitment modes are favored. Culturally also many of the emerging economies are more uncertainty tolerant and accepting of power distance in society, hence they are confident to deal with the complex activity of acquisition integration even in culturally distant countries.

5 Discussion 5.1 Services Companies from Developed Economies Entering Other Developed Economies A sample consisting of all US services companies entering the UK through partial or full acquisitions between 1980 and 2015 is obtained from the Thomson Reuter’s SDC Platinum database and analyzed industry-wise in Table 1. The bulk of transactions Table 1 US services companies entering UK

US acquiror’s services industry

Average equity ownership

Number of transactions

High technology

97.1

482

Consumer products and services

95.6

195

Media and entertainment

92.9

111

Healthcare

100.0

20

Industrials

92.2

18

Financials

100.0

4

Retail

100.0

1

9 Institutional Arrangements and Inter-Organizational … Table 2 Worldwide services companies entering India

125

Acquiror’s service industry

Average equity ownership in India

Number of transactions

High technology

82.1

110

Consumer products and services

84.5

51

Media and entertainment

79.6

37

Industrials

89.4

10

Healthcare

93.3

5

has greater than 90% equity ownership, indicating significant commitment on an average. The lowest industry commitment was 92.2%.

5.2 Services Companies from Developed Economies Entering Emerging Economies Between 1980 and 2015, about a thousand services companies had entered India through various institutional arrangements as per the data obtained from the Thomson reuter’s SDC Platinum database. Cross-border M&As is seen as a preferred entry mode into emerging economies from the perspective of firms based in developed economies (Lebedev et al. 2015). As compared to developed–developed economy transactions in Table 1, one can note that the average equity ownership has dropped in Table 2. Nearly 90% of these acquisitions (250 in number) were from the US (103), UK (31), France (21), Japan (12), Singapore (12), Australia (10), and single-digit acquisitions from other countries. In total, 139 (56%) of the 250 acquisitions were full acquisitions with 100% ownership. About 10 (4%) transactions were at 51% ownership, the next largest category, and the bulk was in between. A similar analysis for services companies entering China in Table 3 also indicates a much lower average equity commitment as compared to developed countries.

5.3 Services Companies from Emerging Economies Entering Developed/Emerging Economies A dataset was collected from the Thomson Reuter’s SDC Platinum database consisting of all the 282 companies from the services sector in India that made foreign direct investments between 1980 and 2015 into a variety of countries. Of these, 122 transactions (43%) were made in the United States and 36 in the United Kingdom (13%), and rest were spread across 32 countries. Emerging economy firms have been

126 Table 3 Worldwide services companies entering China

Table 4 Indian services companies going abroad

R. Venkateswaran Acquiror’s services industry

Average equity ownership in China

Number of transactions

High technology

79.3

149

Media and entertainment

78.7

68

Consumer products and services

79.4

66

Industrials

92.6

21

Healthcare

39.1

7

Financials

78.0

3

Retail

77.7

3

Acquiror services industry from India

Average equity ownership

Number of transactions

High technology

90.2

218

Consumer products and 93.5 services

30

Industrials

91.2

16

Media and entertainment

77.2

12

Healthcare

79.2

6

reported to find acquisitions as a preferred mode of entry into both developed and emerging economies (Lebedev et al. 2015). Nearly 90% of the 282 companies were declared as “high-tech” firms, with average equity ownership of 90.2%. In comparison with the previous tables, it is notable in Table 4 that companies from emerging economies have acquired much larger equity ownership in developed countries as compared to acquisitions in the reverse direction. Of the 282 acquirers, 211 (75%) were from the IT Consulting and Services, or Software and Internet Services industries. The actual companies that made nearly 40% of these transactions are listed in Table 5. It is observed that 222 of these companies (78%) chose to own 100% equity in their subsidiaries. The next largest group of 22 companies (7.8%) chose to own anywhere between 49 and 51% ownership, which was, however, declared explicitly in the database as “non-joint-ventures,” indicating that these were some other form of hybrid arrangements. All remaining ownership structures were in small numbers (07/27/2012, NOW 88681P)

4

100.0

Crisil Ltd

4

77.3

i-flex Solutions Ltd

4

79.8

iGATE Global Solutions Ltd

4

87.8

NIIT Ltd

4

100.0

Quintegra Solutions Ltd

4

100.0

WNS (Holdings) Ltd

4

100.0

An examination of the purpose of the acquisition revealed that most of these firms were motivated to strengthen existing operations/expand presence in the secondary market (for example, TCS3 ) and also exploit sound investment opportunities (e.g., Wipro). Given that most of these firms were in the high-tech industry, it is understandable that they may require significant control over assets through ownership equity. Another popular explanation is that these firms were cash-rich and responded to

3 Chief

Operating Officer N. Ganapathy Subramaniam on TCS acquiring W12 and BridgePoint Group: “We continue to remain open and hungry for acquisitions. We have one of the best track records in terms of acquiring companies and integrating them… the approach is that clearly, we are in the market looking for the right asset which will add certain amount of IP (intellectual property), market reach or client addition”. Source: https://www.livemint.com/industry/infotech/tcs-says-hun gry-for-acquisitions-eyes-further-acceleration-in-growth-1555251237293.html.

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investor pressures to deploy the cash into asset acquisitions.4 Services firms have also innovated on entry modes, such as “near-shore” operations, a unique combination of location choice, and tight customer linkages. Of the 538 Chinese companies that made international acquisitions, nearly 52% made full ownership (100%) acquisitions, followed by 3% of firms that acquired 51% ownership. Among other BRICS countries, South African firms made 124 foreign acquisitions, of which 85 were 100% acquisitions followed by eight transactions with 51% ownership. Brazil and Russia had few transactions in the dataset, hence these are not analyzed.

6 Recommendations Root (1994) has observed that managers take any one of three approaches to the entry mode decision: naïve, pragmatic, and systematic. The naïve approach is the identical choice of entry mode into all countries, an unexamined decision. The pragmatic approach is whatever works in each country, learnt the hard way through trial and error, whereas the systematic approach considers an array of factors and evaluates them on the basis of the profit contribution potential of the mode. The systematic approach offers the right fit for the firm and the country and is more likely to result in good performance of the firm. The entry mode decision is not a one-time decision, but something that needs to be constantly evaluated based on the ongoing performance of the current mode of entry and revisited in terms of the degree of commitment/control/risk. Companies can also decide on a sequence of entry modes based on their learning-by-doing through making small commitments and reflecting on their experience. In practice, many managerial influences are consequential to this decision. Table 6 provides managers with a template for systematic decision making on the entry mode selection. This is based on an adaptation of Root’s (1994: 163) framework, with added factors for services companies based on Erramilli and Rao (1993), and combined with Meyer and Nguyen’s (2005) theorization on the choice of subnational locations.

4 Source:

https://www.livemint.com/Industry/kvSnIbWixdDVgzxS9zXq8M/Wipro-puts-cash-togood-effect-as-its-acquisitions-get-bigge.html.

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Table 6 Proposed template for systematic decision-making on mode-of-entry for services companies (adapted and extended from Root 1994: 163) Comparison of % Weightage feasible entry modes for the factor for the Firm specific company selection criteria

Scale: Very Low-1; Low-2; Medium-3; High-4; Very High-5 Feasible Entry Mode 1

Other

Feasible Feasible Entry Mode 2 Entry Mode 3

Availability of company resources Prior relevant international experience Marketing control Operational control Technological control HR policy control Financial control Top management control (expatriates/locals) Administrative control Product adaptation Brand challenges in the region (counterfeits etc.) Logistical network (ability to supply neighboring markets) Magnitude of investment required Percentage growth in sales in India (estimate) Costs - (E.g. import tariffs, premium or setup costs) Profit Contribution Estimate (repatriated profits) Market share gain estimate (continued)

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Table 6 (continued) Comparison of % Weightage feasible entry modes for the factor for the Firm specific company selection criteria

Scale: Very Low-1; Low-2; Medium-3; High-4; Very High-5 Feasible Entry Mode 1

Other

Feasible Feasible Entry Mode 2 Entry Mode 3

Strengthens global competitive advantage for the region Strategic fit with HQ internationalization strategy < Add your factor > < Add your factor > < Add your factor > Non-profit factors Can trigger competition counter-moves Strategic role of country market Basis for further expansion Reversibility of the decision < Add your factor > Risks Financial risk exposure Any Other Time taken to set up full operations < Add your factor > TOTAL WEIGHTED SCORE Manufacturing (yes/no) unit needed Marketing (yes/no) unit needed (continued)

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Table 6 (continued) Comparison of % Weightage feasible entry modes for the factor for the Firm specific company selection criteria

Scale: Very Low-1; Low-2; Medium-3; High-4; Very High-5 Feasible Entry Mode 1

Feasible Feasible Entry Mode 2 Entry Mode 3

Tier-2 city

Rural areas

Other

Recommended entry mode or mix of modes Recommended entry mode evolution sequence Choice of Tier-1 city / sub-national region Metros for location Scarce local resources available Cost of land Cost of power supply, infrastructure Local talent availability and importance Mobility of talent Attrition rates in local talent Any other factor of production Importance of regional networks Local market oriented FDI or Export oriented FDI Select/reject subnational location

Special Economic Zones

Other

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References Brouthers, K. D., & Brouthers, L. E. (2003). Why service and manufacturing entry mode choices differ: The influence of transaction cost factors, risk and trust. Journal of Management Studies, 40(5), 1179–1204. Brouthers, K. D., & Hennart, J. (2007). Boundaries of the firm: Insights from international entry mode research. Journal of Management, 33(3), 395–425. Buckley, P. J., Munjal, S., Enderwick, P., & Forsans, N. (2016). The role of experiential and nonexperiential knowledge in cross-border acquisitions: The case of Indian multinational enterprises. Journal of World Business, 51(5), 675–685. Datta, D. K., Hermann, P., & Rasheed, A. (2002). Choice of foreign market entry modes: Critical review and future directions. In M. A. Hitt & J. Cheng (Eds.), Advances in international management (pp. 85–153). Greenwich, CT. JAI Press. Erramilli, M. K., & Rao, C. P. (1993). Service firms’ international entry-mode choice: A modified transaction-cost analysis approach. Journal of Marketing, 57, 19–38. Johanson, J., & Vahlne, J. E. (1977). The internationalization process of the firm: A model of knowledge development and increasing foreign market commitments. Journal of International Business Studies, 8, 23–32. Johanson, J., & Vahlne, J. E. (2006). Commitment and opportunity development in the internationalization process: A note on the Uppsala internationalization process model. Management International Review, 46(2), 165–178. Lebedev, S., Peng, M. W., Xie, E., & Stevens, C. E. (2015). Mergers and acquisitions in and out of emerging economies. Journal of World Business, 50, 651–662. Luo, Y., & Tung, R. L. (2007). International expansion of emerging market enterprises: A springboard perspective. Journal of International Business Studies, 38(4), 481–498. Mathews, J. A. (2002). Competitive advantages of the latecomer firm: A resource-based account of industrial catch-up strategies. Asia Pacific Journal of Management, 19(4), 467–488. Mathews, J. A. (2006). Dragon multinationals: New players in 21st century globalization. Asia Pacific Journal of Management, 23(1), 5–27. Meyer, K. E., & Nguyen, H. V. (2005). Foreign investment strategies and sub-national institutions in emerging markets: Evidence from Vietnam. Journal of Management Studies, 42(1), 0022–2380. Root, F. (1994). Entry strategies for international markets. Wiley Publishers.

Ramya T. Venkateswaran is an Associate Professor at the Indian Institute of Management Calcutta. She joined academia after completing more than adecade of corporate work experience in India and teaches courses on Strategic Management, Strategy Execution, and International Business. Her research interests are in the areas of culture in international business. She has published in Asia Pacific Business Review, Critical Perspectives on International Business, and Journal of Business Research, and has presented her research work at several international conferences. She is a three-time winner of Best Reviewer awards at the Academy of Management and has won a Best Instructor Award at the X-Culture project in 2018 among instructors from 37 countries.

Chapter 10

Service Marketing Issues in Emerging Economies: Brand Equity of Domestic Service Brands Rima Bhattacherjee and Atanu Adhikari

1 Introduction Branding in services brands is a very essential and special part of marketing a servicebased company. Unlike products which are tangible, services are intangible and hence creating a strong brand would increase customer’s trust of the purchase of an intangible product, that is, a service. Evidence suggests that a strong brand would reduce what the customers perceive as social, monetary, or safety risk of buying the services as evaluating the quality of the purchase is extremely difficult to evaluate unless experienced. Researchers have found that purchasing a tangible product or a packaged good, the product represents the brand whereas purchasing a service, the experience of the service represents the brand. For example, it is impossible to pack and display the taste in a coffee in a similar way as servicing the coffee in an exotic cup-set with a design of crème on the coffee foam. The main motivation to close the gap in the levels of income in middle and lowincome countries is to have an understanding of the importance of service-based industries and intangible assets that include high valued service brands and servicebased products to gain competitive advantage. This would lead to the momentum of growth leading to the move of the brands from the country’s home market to global markets. Internationalization has led to increased market activities at the global front, with multinational brands, competing with domestic brands in emerging markets because of high levels of consumption in these countries. Emerging market consumers have

R. Bhattacherjee (B) · A. Adhikari Indian Institute of Management Kozhikode, Kozhikode, Kerala, India e-mail: [email protected] A. Adhikari e-mail: [email protected] © Springer Nature Singapore Pte Ltd. 2020 A. Adhikari (ed.), Services Marketing Issues in Emerging Economies, https://doi.org/10.1007/978-981-15-8787-0_10

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different perceptions toward foreign or non-native and local brands, even within the same category of product or services (Herche 1992). For example, in the hospitality service industry in India, where both foreign brands such as Marriott, Hyatt, Novotel are equally present along with domestic brands, such as Taj and ITC, the research found evidence that in the developing countries foreign or overseas brands are preferred more over the local brands (Agbonifoh and Elimimian 1999). In such countries of developing economies, consumers prefer foreign brands because of the symbolic meanings that these brands convey in society (Kottak 1990). This preference is more common when the foreign product or service is related and perceives as a status symbol or has a conspicuous consumption (Piron 2000). A customers’ natural instinct is always to associate their own self with the brand. A strong brand name is “a safe place for customers” (Richards 1998). The intangibility of the services, makes the customer buy them from a safe or known brand, an appealing proposition to purchase. The research found that emerging market companies focus on profit-making keeping the brand building as a secondary objective. This consequently drives the domestic companies towards the mass market limiting their brands’ performance on the factors of brand equity. The advancement of the service sector has been limited because of the issue in trusting the quality and intangibility of experiencing domestic service brands. Thus, branding provides a unique solution to decrease the “purchase risk” of the customers in emerging economies and changing the mindset of “tangibilising the intangible” and branding optimizes the cognitive ability of the customers towards service thus bringing Brand equity (Levitt 1981; Onkvisit and Shaw 1989; Berry 2000). Moreover, brand equity always allows the domestic service companies to evaluate their own brand’s positioning in the market in comparison to their international competitors, keep a close watch over the company’s brand equity value and develop corrective and preventive strategies at the right time (Hashim and deRun 2013). Brand equity literature in the recent past has stated that there are two well-accepted views that provide invaluable insights about the customer-based brand equity. Aaker et al. (1991) explained that there are four basic dimensions of a customer-based brand equity: Brand loyalty, Brand awareness, Perceived quality, Brand associations, and Other proprietary brand assets. Whereas, another theoretical conceptualization by Keller’s (1993) states that “the power of any brand lies in what the customers have felt, seen, learned and heard about the brand itself as a result of their experiences over a period of time” (Keller 2003, p. 59). The model clearly depicts in a very insightful way that Brand image and awareness are the key factors that create Brand equity (Atilgan et al. 2009). Keller’s measures can be analyzed in the context of service marketing issues in the emerging markets for domestic brands at various time points to follow any strong or weak market perceptions in relation to the objectives of service brands. A well-applied strategy could provide long-term and effective performance measures for emerging market domestic companies. It could be a point of reference for the domestic brands in emerging markets to optimize their branding efforts regardless of the functional diversity that they operate in such an economy. This includes their

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internal as well as external marketing, including organization of internal staff, channel members, partners, advertising agency, other stakeholders, and budget.

2 Service Marketing Issue: Brand Equity of Domestic Service Brands Brand equity provides an intangible advantage to the emerging market companies promoting domestic brands, and if it is leveraged in a successful manner, the domestic company can be a differentiator in the market for their services. It would design a much higher and better value in the mind of the consumers (Kim et al. 2002). Berry (2000) stated that it is extremely important for a domestic service brand that with a well-built brand equity, would help the local consumer to better understand the service and what it might provide to the consumer thus reducing the perceived risk. Biedenbach et al. (2015), Farquhar (1989) stated that strong brand equity can result in creating a brand value in the customer mind which would lead to a brand recommendation by word of mouth, inclination to pay higher by the consumer and create barriers to prospective competitors to enter the market (Davidson et al. 2015). Some researchers state two-tier schools of thought explaining the strategies to position their services in the market. The first school of thought states that brand positioning of services should be no different than the products due to their similarities with services (Cowell 1989), whereas the second school of thought states that as services are unique from products in their attributes, they justify a different positioning strategy in their approach (Zeithaml 1981). Researchers (Kotler et al. 1996) defined services as. Berry (1980) stated that “A service is a benefit that one company can offer to another which is always intangible. The production of the same may or may not be compared to a physical product.” Services have various unique characteristics, (Cowell 1989; Donnelly et al. 1985; Arnott and Easingwood 1994) which differentiate them from products, and hence affect their brand positioning strategies for the domestic in the emerging market. These characteristics are Intangibility, Variability, Perishability, Inseparability, Non-standardization, Ownership. Furthermore, the issue of tangibilizing the service to a position in the market is present in Arnott’s (1992) definition of services brand positioning which emphasizes on molding the features of the service or product. Arnott (1993) states that there are two positioning perspectives: (1) customer or consumer; and (2) organizational or managerial. Hence, positioning a service brand in emerging markets is intentional, self-driven, or proactive, repetitive process of defining, measuring, monitoring, and modifying consumers’ mindset or perceptions of the marketable object. The concern regarding positioning of services in an emerging economy is that though the conception of positioning is equally relevant to both domestic and multinational companies as services have various differentiating attributes, positioning of

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service brand in an emerging market is much more difficult than their multi-national counterpart (Bateson 1995; Cravens and Lamb 1989). The services of an emerging market brand are experienced by its quality. At the same time quality is such an attribute which can be realized only after the purchase or while using the service. This includes characteristics, such as choice, wearability, and contentment of purchase by the customer. For example, services including medical treatment, package holidays, restaurant meals, etc., experience qualities. The attributes of these services cannot be assessed until they have been purchased and utilized by the customer in the emerging market. Subjectivity, oversimplification, and incompleteness are posing problems in the interpretation of services. Since emerging market consumers are majorly risk-averse, they tend to hedge their risk with the brand that holds higher equity. In case the domestic brands are unable to build comparable service quality, they can position themselves in the market based on the dimensions, including (1) satisfying unique needs of the customer and (2) delivering local benefits to the customer. Domestic service brands could be positioned to improve the tangibility and also to have a long-lasting effect on the customer minds and thus the positioning strategy should be to have advertisements with a high proportion of emotions. Symbolic representation, eye catchy logo, and personalized message or headlines of the service also helps in domestic brand recall, brand awareness, and in turn brand equity. Berry (2000), Nath and Bawa (2011) states that brand equity of services is very different and more important than for the products. He and Li (2011) states that variability and intangibility are the characteristics of services that are different from that of the products. It can be argued that since access to information of emerging market consumers is less, while purchasing a service, the ability of the customer to assess the quality of that service is much lower than when assessing the quality of a product because, in case of product, several information comes from prior assessment of product features. It can be further argued that this might increase the risk while purchasing a service in the customer’s mind. Hence, domestic brands in emerging economies with higher innate value can help to reduce the perceived risks of emerging market consumers. He and Li (2011, p. 80) suggested the service brand equity guide, where authors showed the link between five factors and their influence on brand equity. The main factors are the brand presented by the companies, external brand communications, customers’ experience with the company itself, brand awareness, and brand meaning (Berry 2000). Berry (2000) describes the brand presented by the company, as the communication of the company’s identity through controlled channels such as presentation of services offered, the service center, or advertising of their services as their product. He further describes the external brand communications by the company as the understanding appreciated by customers regarding the service and the company. Hence, for the domestic brands in emerging markets, the knowledge gained by the company can be comprehended through various channels such as nontraditional communication, word of mouth, and publicity. These factors influence the brand meaning and the brand awareness if done properly. The factor stimulates customer experience which engages the customer in the process of creation

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and consumption of service experience provided by the company. Since domestic brands have a native connection, promoting it through emotional connection could be an extremely powerful factor to acquire and retain service business by domestic service brands. At the same time, if such a native connection is not built with proper care, it can destroy the positive image that the company has worked for. Since brand meaning is the customer’s perception of the brand and association with the brand. It is also important to note that the brand meaning is primarily influenced by the customer’s experience with the brand. So the brand meaning of a domestic brand in turn primarily affects its brand equity. Hence the brand communication having an emotional component to it is another influencing factor, the domestic brands need focus in order to higher market share (Manhimer 2007). Balaji (2011) states that Aaker’s five factors have concluded that in services the three most significant factors in emerging markets are; perceived quality, brand awareness, and brand loyalty specifically for the emerging economies. Similarly, the service brand equity such as in the healthcare sector, the perceived service quality and brand loyalty are considered to be the most significant factors; and have a positive impact on the service brand equity (Chahal and Bala 2012). Researchers have (Balaji 2011; Chahal and Bala 2012) defined brand loyalty, as the willingness of a consumer to repurchase a service regularly even if there are other cheaper alternatives available or there are other influences from different companies in the market. Perceived quality of a customer toward a brand is defined by Balaji (2011) as an assessment of the customers of developing economies of the service in relation to the quality they expected it to be. The final factor used by Balaji (2011), brand awareness, is defined as the part of the brand that is there in the consumer’s mind as a memory. Further, he states that while dealing with the customers of emerging economies; one of the main concerns a company has in order to grab the attention of a customer is building brand awareness while the customer is making purchase decisions for any service. Brand familiarity means that the customer knows and is aware of the brand, they are able to recall the symbol or logo and the customer has some opinion about the brand (Nath and Bawa 2011). Brand loyalty is described as the frequency at which the customer uses the service and if the service is unavailable, and the period for which the customer would wait but would still use the same service (Nath and Bawa 2011). Finally, the brand association is described as the trust and admiration of the customers for the brand (Nath and Bawa 2011). A good example to explain this would be the insurance brand of LIC (life Insurance company) which captured the entire market by its local brand familiarity among the customers. The brand created an emotional association with the customers of India and brand loyalty became so immense that even today it stands to be the biggest player in the insurance market. The company strategized the brand placement in the market in such a way that the brand recall could have an impact on the customers of every part of the country. However, the chapter relates to emerging countries where the market is densely populated in many countries, perceived quality of service, social and economic conditions are in the growth stage; thus, making the service differentiation a less critical factor. These conditions will therefore impede the development of commonly

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perceived competitive offerings in the service industry, and go more with an emotional connection with the customers. The presence of competition in the services industry requires a resilient and enabling environment which is usually lacking in emerging economies (13). Dr. Erez Manhaimer has defined Brand equity as a combination of brand assets and brand liabilities which is associated with a brand, its name, and its logo or symbol. This would add to or take away from the value provided by a service to a company and/or to that company’s customers. The brand’s name or the logo is so sensitive for a company that if that changes, it would severely affect or lose some or all of the assets or liabilities. According to Aaker (1991); the assets and liabilities of a company on which brand equity is based will differ by context. However, they can be grouped into five categories: 1. 2. 3. 4. 5.

Brand Loyalty Brand Name (Awareness) Perceived Quality Brand Associations Other Proprietary Brand Assets.

1. Brand loyalty of domestic brands in emerging economy: Brand loyalty is a tendency of the customers to be committed to a particular brand such that the customer intends to purchase the brand repeatedly in presence of another brand and prevents switching to other brands present in the market (Yoo et al. 2000). Researchers found that brand loyalty encourages customers to pay a price premium, keeps other brands away, and protects the brand from intense price competition in the market (Lassar et al. 1995). Emerging market customers’ positive attitudes towards the domestic brands which determine domestic brand’s loyalty. Researchers have stated that for consumers in developing countries, the country image or attitude toward their country plays a very significant role in influencing their purchase behavior (Lin and Sternquist 1994). Researchers studying brand loyalty towards domestic brands has revealed that emerging market customers’ positive attitudes toward multinational brands had significantly influenced adversity towards local brands (Shen et al. 2003). Hence it can be argued that the likelihood of emerging market customer to switch to international brand, especially when there is any change in the brands marketing mix, such as the price or product features. At the same time as loyalty towards domestic brand increases, the possibility of the emerging market customers to move to an international brand is reduced. For service industry, it is relatively expensive to acquire new customers and cost-effective to retain an existing customer base, especially when the existing customers are satisfied and/or happy with the domestic brand. Competitors might even refrain from spending capital and resources to attract the customers who are already satisfied and those who show loyalty to a domestic brand. Higher the brand loyalty shows greater trade and economic leverage; because the customers expect the brand to be meeting the specific requirement of local consumers always. On the basis of the above argument, we propose that:

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Proposition 1: Emerging market consumers’ brand loyalty towards domestic brand will be higher when the brand connects with the domestic culture of the emerging country. Proposition 2: Emerging market consumers’ brand loyalty toward domestic brands will be lower when there is a change in the marketing mix of domestic brand. 2. Brand Awareness: Customers often prefer to buy a known brand as they are comfortable, familiar, and/or they feel that a brand is reliable and of expected quality. If the customers feel uncomfortable about a product’s name or are unaware of it, they tend to keep away from the product and that leads to loss of product sales and revenue. Brand names should be easy for the customers to remember, visualize, pronounce, and spell. State Bank of India is one such example of the banking industry wherein the customers are aware and trust the brand wholeheartedly. They are aware of the benefits, interest rates, various investment options that they can avail at State Bank of India. Being a domestic brand in an emerging country like India this has a customer base from all sectors of the socio-economic strata. The customers connect themselves to the brand name, logo, availability of services leading very high brand recall. As stated by Page and Lepkowska-White (2002) customers prefer to choose a brand that they assume are familiar with. The potential of a customer to connect with a brand with a particular product or service category is known as brand recall (Balaji 2011). The first brand name that a customer thinks of even subconsciously purchasing a product is called the top of mind brand awareness. Proposition 3: An unfamiliar brand including foreign brands would have significantly less acceptance by emerging market consumers. As stated by Page and Lepkowska-White (2002) services organizations can build their brand awareness by communicating their messages through offline approaches (e.g., having advertisements in newspapers, magazines, billboards, sponsorships, etc.) or through online approaches (e.g., social media, banner, etc.). External communication directs the communication that is controlled by the customer and not by the company, for example, experiential marketing, word of mouth (Berry 2000). The research found that emerging market consumers get more influenced by non-traditional communication medium like the body of the transport, through songs in retail shops, back of the envelope, and many more such media. In fact, in the emerging economic countries, the most impactful marketing communication is via the word of mouth as the close community of customers trust each other words, they share their own experiences with the brand, be the brand ambassador and promote the brand accordingly which would lead to have a positive impact on the brand equity within the service brand equity. Proposition 4: In the emerging market, communication through non-traditional media has significant influence in increasing awareness. 3. Perceived Quality: A product or service brand will always be related to its perception of the overall quality, which is not mainly based on the knowledge of expected specifications of the service. Perceived quality will primarily influence customers’ buying decisions and brand loyalty, largely when the customer is not

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encouraged or able to carry out a detailed analysis of the service. Further, the perceived quality of the service can be the foundation for the brand extension of the company. If a brand is highly eminent or popular in a particular context, then the customer’s assumption will be to experience a higher quality in a related context. In the emerging market, the perceived quality is value-centric. For example, in the hospitality industry, Taj is the most premium brand in India. The brand equity of Taj is well known in the market and needs to the introduction of that. Taj launched Vistara as an airline service. The customers could easily perceive the expected quality of service they would have on availing the services even before experiencing the travel with Vistara as they could relate to the quality of Taj has for their customers. However, when the same airline charged fares which are far higher than the competitors, customers switched to the competing airline that offered acceptable service quality at a lower price. Several researchers state in accord that the customer’s perceived quality of a product or service has a very remarkable impact on brand equity (Berry 2000; Pinar et al. 2014). Berry (2000) stated that the customer’s experience with the brand is one of the most important factors that influence the brand equity for the service brands which can very well be seen with the success of Vistara in terms of the market share along with the other airlines in the market. However, in the emerging markets; if the customer’s perceived quality of service will be different from the customer’s expectations, there will be an adverse impact on the brand image and very little marketing communication of the company will be able to compensate for that thus affecting the brand equity. Balaji (2011) and Pinar et al. (2014) also affirmed that for service brands the perceived quality by the customers is the essential factor in brand equity. He and Li (2011) stated that it is difficult to imitate a service and hence the quality plays an important and significant aspect for the service companies in order to create a differentiator in the market of the brand and attract novel customers (He and Li 2011). Proposition 5: Perceived quality of emerging market consumers are more value centric than attribute centric. A very high-cost high-quality service may be perceived as inferior quality to reasonably prices good quality service. 4. Brand Associations: The brand associations are the beliefs and thoughts a consumer has while recalling a brand (Balaji 2011). According to Berry (2000) brand associations structures the brand meaning and customers give reasons for buying a service (Balaji 2011). Brand association shows the customer’s own perception and associations related to a brand based on their experience and understanding of the brand (Chahal and Bala 2012). One of the India’s most premium brands in the airline industry is Air India and the brand has created a huge influence on the customers of the domestic market. Air India positioned itself on Indian taste and culture to come close to the heart of Indian travelers. The brand association has developed is such that the customers are pleased to pay a premium prices for it as they know about the customer

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service, quality of food, communication regarding the schedule of flight, safety, etc., is better than the other international players in the industry. An emotional connection created through national taste and culture towards a brand is an important factor for both the service brands and product brands in the emerging economy. This should be considered through feelings of closeness, affection, and trust (Berry 2000; Christodoulides et al. 2006). As in case of Air India, the customers take the service especially if they have long hours of travel in the airline, travel internationally and take pride in availing the service and become a brand ambassador, and representing that this is a brand of their own country. The brand must build and bridge and have a connection with the customer’s core values (Berry 2000; Christodoulides et al. 2006). According to their view, the brand associations are positively associated with brand equity. Proposition 6: Emerging market brands that position itself in line with domestic taste and culture will have a significantly strong association with its customers. 5. Other Proprietary Brand Assets: This constitutes proprietary brand assets such as trademarks, patents, and channel partnerships. Service brand assets are valuable in the domestic markets as they do not allow competitors from abrading the customers’ base and brand loyalty. For example, a trademark will save the brand equity from the competitors who would like to confuse the customers by using a similar logo or symbol, brand name, or even packaging. A strong and relevant patent, according to the choice of the customers, can prevent direct competition in the market. An exclusive channel of providing services can be empowered by the brand to showcase the brand performance in the emerging economic markets where the competition is so high among brands providing similar services to the customers (8). Researches have shown that service companies have mostly focused on the services and business models of the economic countries which are at the top of the pyramid (Arnold and Quelch 1998; Prahalad and Lieberthal 1998). Moreover, the notable growth of a company is influenced by reaching the bottom of the economic pyramid that is the low-income groups of the world’s population, which signifies the biggest and the fastest expanding segment. Nearly 70% of the world’s total population that counts to more than 4 billion people, represents a vast potential of the untapped market with a tremendous opportunity to market and explore the services market are at the base of the pyramid of the worldwide economic system (Prahalad 2005) thus opening a great opportunity to the companies to explore, reach the masses and cater to the demands of the customers of these markets (14).

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3 Issue in Context to Developed Country In the developed countries, the service marketing issues are created by the changing scenarios in service industries, such as deregulation and increasing competition globally. Provision of services is a matter of concern because it deals with the efficiency and effectiveness to make sure that the service reaches the customer. Some researchers, (Bertrand 1989; Humble 1989; Onkvisit and Shaw 1989) have indicated that the areas of quality delivered and the customer service will become the new battle zone as the service firms will face more deregulation and competition globally (Oumlil and Rao).

4 Issue in Context to Emerging Market Kathman (2002) stated that the growing economies of nations having high-value brands, which are accepted by consumers worldwide are more powerful than the other brands. The word “value” in classical economy defines it in relation to shortage or scarcity whereas the definition of “value” in a new economy is associated with the numbers of customers or users in a particular geography. For survival in a highly capitalist and complex world of business; political, economic, and military power are elucidated as vital differentiators of competitive advantage. The alteration in the continuous growth and stability of a nation’s economy in today’s world is referred to a progressive outlook involving the importance of services and intangible resources for the growth of economies in the developing nations. The dynamics according to the definition of this new economy are substantially dependent on “value” creating, depending on the primarily intangible resources or services. According to some studies, nearly 80% of the capitalization of market, the companies are intangible which are primarily into services and/or do not have any financial incorporation (Brand Finance 2017). In general, brand recognition internationally and the value of locally developed (domestic) brands from emerging nations or low and middle-income nations is inferior. The domestic brand companies in these countries are growing but trivial, and so does their brand value which is average. There are many factors for the above situation, such as the company’s age and experience in dealing with the service brands, resources and capabilities of the emerging market companies, their abilities to counter and sustain competitive strategies of international brands, and the absence of their presence internationally in terms of financial capitalization and utilization, their marketing budgets and marketing strategies, etc. (Gungor 2019). Corrado et al. (2014) stated that growing economic countries such as Spain and Italy have high non Information and communication technologies capital (ICT capital) growth but their overall productivity growth is poor because their total factor productivity is very low. In addition, these countries have services dominant industry thus beings affected due to poor total factor productivity and poor intangible capital

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growth. However, a country like China, which is in transition to a developed country, has also become a renowned country after 2013, changing the strategies with its investments in service industries and intangible resources. The China Centre for Economics & Business, 2012 has mentioned in a report that the ratio of investments that are intangible had increased their GDP from 7% in 2013 to 8.5% in 2017 because of large investments in the service industry such as software, Research & Development and design. The low but positive relationship between GDP of an emerging country and the value of domestic brands, as found by earlier researchers, are in accord with the perception that marketing, advertising, and Research & Development take a longer time period to return on investments. Clary and Dyson (2014) discussed that the accomplishment of the firm is related very closely to the customers’ loyalty towards the brand which depends on the service quality, innovation, use of technology, design of the services provided, company’s human resources, R&D, and management methodology. The developing countries do not go for long-term investments instead they prefer to allocate restricted resources of the companies for higher returns. Hence, prolonged investments for brand development in developing countries are the drawbacks that lead to a larger income gap between developed and developing economies. To understand the importance of services and other intangible resources, precisely brand enhancements and launching new brands in the market, is of larger significance in emerging countries, for example, India and China. Comparing and contrasting the marketing challenges faced by companies in emerging economies and the developed economies: • There is a huge difference in cultural factors, purchasing ability, and economic development between and within the different sections in an emerging market in comparison to the developed countries. The purchasing ability of the customers is much lower and they tend to have an emotional purchasing behavior in emerging economic countries. • The companies in the emerging economies do have enough data sources and credit histories that they can refer to in order to derive statistics from it to plan their next marketing strategy. • Recruitment of skilled manpower and managers is a challenge that companies face because the expected quality of talent is difficult to discover. There are relatively fewer recruitment agencies and search portals being used by the developing markets thus leading to low skilled manpower. • The purchase behavior, service or product quality expectations, incomes, and the level of knowledge and Brand awareness is different in the customers in emerging economies. This leads to an increase in the purchase of domestic brands more. However, change in purchasing behavior is also leading to categorize some brads to the niche and premium markets. • Another concern of emerging markets is that there is a very poor distribution network and the intermediaries are often low-skilled which in turn, leads to poor customer service, thus hampering the brand image.

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• The legal system in developing economic countries is weak, complicated, open to corruption and that can impact the brand equity of a company. • The competition at the local market level is very high in the emerging economic countries as they tend to understand the local customers in comparison to the developed countries who seldom understand the local customers that well. • The developed countries face challenges to obtain accurate, reliable, and latest information on conditions of the present market at both micro and macro levels of the developing countries. • The other significant challenges developing countries face are poor infrastructural facilities, low-quality roads, erratic electricity supply, and many others. The challenges discussed above are very apparent ones, in spite of that there is increasing number of multinational companies who want to invest in and are turning towards the emerging economies to investigate the tremendous business opportunities. The companies are managing successfully the challenges of the emerging market by bringing in innovations and proactiveness thus increasing entrepreneurial (14).

5 Discussion Though there are opportunities present at the base of the economic pyramid in the emerging markets, it might be more suitable to develop unique marketing strategies to cater to the customers across the country markets (Arnold and Quelch 1998; Prahalad and Lieberthal 1998). The companies catering to the bottom of the economic pyramid markets need to essentially analyze their marketing strategies and their business models to take into consideration the needs of the customers in the domestic market (13). Zeithaml et al. (1985) have summarized the extent to which different business strategies and practices are used to combat these challenges linked with services across various companies. These marketing strategies and practices are particularly suitable for service companies as given below: Pricing: Researches have stated that the cost-oriented pricing strategies are preferred more than the competition based and demand-oriented pricing strategies in the emerging markets. The service costs of the domestic brands are hard to calculate; however, the service companies estimate that the costs incurred are covered in the pricing strategies they prefer. Competition-oriented pricing is simple to implement while on the contrary, Demand-oriented pricing is difficult to implement but both of these strategies may not provide the assurance that the costs incurred are covered in this pricing strategy especially when the customers are so price sensitive in the developing economic countries.

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Advertising: The customers in a developing country can range from all strata of socio-economic status and hence the advertising of service would vary accordingly. Studies have indicated that there is a marked difference in the use of advertising among various types of service companies as the customers in the developing economies differ in their level of perceived quality by the customers, brand image, brand recognition, and brand loyalty. Service companies with institutional customers described that advertising is not much important than their marketing programs and advertisement for their consumers due to substantially lower usage of television and newspaper. Companies that need the physical presence of their customers during service delivery, state that television and newspaper advertisements are significantly appropriate. The probable reason is that services with long-lasting benefits (e.g., education institution) are more costly and require more participation of the buyer, and triggering a purchase by advertising in the newspapers and on television is less likely compared to cost-effective, lower participation purchases where benefits are immediate (e.g., having meal in a restaurant) (10). Personal selling: In a developing economic market, the customers always respond to purchase if they can have an emotional connect with the brand. The service companies carefully recruit their customer care employees and rigorously train them to communicate well with their customers as they are the brand ambassador of the company. Customer orientation: In emerging market, the customer’s purchasing behavior depends on the brand recall and the promotion of a brand through peers and friends. The customers’ perceived quality of a brand completely depends on his experience with the service. The degree of customer orientation may be the result of customer satisfaction, word of mouth, customer service, decision making of top management, and customer grievance redressal thus indicating marketing sensitivity (10). The developing countries have been doing researches in innovating their business models, have the right model that is fits the existing market, and/or formulate new ones that would influence the local customers. There has been the implementation of various strategic moves and models, such as capitalizing on new technology, addressing the unmet needs of the potential customers, and responding to diverse competition, leading to changes in the business operating models and marketing strategies. Anderson and Markides (2007), states that the companies that fulfill the basic needs, overcome the issues in developing markets can surely build the tremendous value for their services in the market (14).

6 Recommendation Service companies in the emerging economic countries need to design their strategies innovatively that cater to the well-defined attributes of the low-income segment markets to unveil the immense development opportunity existing there. They are

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required to rethink their business operating models, develop customized value propositions and have specific marketing strategies that are economical for highly potential, large customers base, and make their services consumer friendly. The focus of the marketers should be on discovering new ways of adapting to the domestic market conditions, the identification and development of the niche market segments that will in turn stimulate huge success, increase market share and improve brand equity (Shah 2012). Moreover, local sourcing, strategic flexibility, the appointment of nonconventional partners, and local industrialism will be of significant importance to drive the success and growth of companies. Many other important factors, such as company’s resources, market competition, market potential, or service distribution networks can also influence the developing marketing strategies. Shah (2012) stated that marketers of the services companies are responsible for explicitly set their strategic goals, engage in uncovering unmet customer needs or discovering new customer segments, and innovatively develop price competitive services and unconventional ways of promoting and distributing methods depending upon the market of the developing economies accordingly. (13) The issues of service brand equity with respect to brand assets and liabilities, brand awareness, loyalty, and brand quality require mitigation and to combat the issues here are some of the recommendations that would help improve the domestic service brand equity in the emerging market. The recommendations are as follows: 1. Brand licensing: Many companies license recognized brands when launching a new service category. The expansion of new capabilities and resources may not be very easy and prove expensive in the emerging markets. This can be mitigated by licensing the brand to another established company which in return would provide an outflow of royalties thus reduce the capital expenditure and risk of failure. Brand licensing is in essence a form of alliancing a brand that enables a company to use the brand of an established or renowned company to market its product for a mutually agreed fee. The company benefits by (i) gaining quick access to the new untapped markets leading to expansion, (ii) leveraging brand equity built-up among customers of other companies, (iii) accessing competences outside the market reach of the company, (iv) increase brand awareness among the customers of the local market, and (v) generating revenues without making many significant investments. 2. Brand franchising: Many companies also pursue franchising strategy and this has proven to be of a good return on investment in the developing economies. The company (“the franchisor”) selects a third party (“the franchisee”) to license its entire business model in a particular geographical location, against royalty payments, or for a stream of other values. In franchise-based business model, the franchisee reserves the right to utilize the brand, its name, and the relevant information thus engaging customers with the brand name. Franchising of a brand is similar to brand licensing which facilitates entry to a new market for the franchisor while at the same time enabling them to avoid expenses associated with brand building and building a new business operating model. Franchising

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makes sure a shorter time to lead the market leading to acquiring new customers and continue servicing the loyal customers (11). Brand acquisitions: Brand acquisitions reduce expenses in several ways which is essential in developing economic countries. First, synergies between the two brands can together enhance the brand equity of the firms and second reduces marketing expenditure. Third, the brands that are acquired might have an existing market presence, an established customer base, and distribution networks, as well as established customer service skills. This enhances market opportunities in developing countries with the companies expecting to acquire established brands for their new service developments where they are aware of the customers’ brand perception. Brand acquiring: Multinational companies are pursuing various marketing strategies to acquire services brands in the developing countries market to have access to the customer base to improve business and generate revenue. Some companies have evolved their brand marketing strategies over time according to the customers of the market. They have pursued a lower cost and lower price marketing strategy, and over time, have raised prices and quality of the services, thus converting lower-cost products to premium brands by changing the customers’ perceived quality of the service brand thus improving brand equity in the domestic market. Joint venture: Joint ventures may be one of the best approaches for service brands. Joint ventures help to spread the cost and risk associated with foreign collaborations in the emerging markets. In addition, the local Joint venture partnership would bring its experience of the local consumers’ purchase behavior, traditions, culture, mindset, and perception, a well-established services distribution network, and impactful business and credible political connections to increase the market reach of the brand. However, this may result in reduced profits, increased operating costs, exposure to services liability, environmental litigation, and penalties due to potential loss of management control initially but later can gain immense market reach to huge masses of customers (11). Online or web distribution channel: The involvement of Internet is constantly changing the present and future of services distribution and design of the industry. The integration of Internet technologies in the future, especially in the services distribution will lead in such a way that the customers would have various options to access and utilize the internet very easily especially in developing economies such as India. Van ZSyl (1999) stated that even from a cost-saving perspective, the application of the Internet would also offer the service providers of the financial industry, the ability to lower the business operating costs and other overheads by moving on many of the administrative and operative functions to the consumers’ end thus improving experiential marketing of domestic service brands (1).

Services marketing is befitting a recognized subset of the marketing specialty. The expansion of the service sector is enormously increasing in developing economies throughout the world. The scholars universally believe that there are certain key aspects in the services marketing that are different from goods or product marketing,

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and hence it is the reason for the rapid expansion of service marketing in recent years. As the service industry continues to expand and as the competition raises of the domestic brands in the developing economic markets, a more collaborative approach and the efforts to solve the challenges found in the services distribution industry will exist.

References Atilgan, E., Akinci, S., Aksoy, S., & Kaynak, E. (2009). Customer-based brand equity for global brands: a multinational approach. Journal of Euromarketing, 18(2), 115–132. Berry, L. L., Cultivating service brand equity (p. 1). Texas A & M University. https://doi.org/10. 1177/0092070300281012. Berry, L. (2000). Cultivating service brand equity. Journal of the Academy of Marketing Science, 28(1), 128–137. Davidsson, P., Johansson, M., & Zetterberg, M. (2015). Brand equity for service brands online (pp. 1–76). Linnaeus University. Frey, C. B., Ansar, A., & Wunsch-Vincent, S. (2014). Defining and measuring the “market for brands”: Are emerging economies catching up? Economic Research Working Paper No. 21. Hashim, S, & deRun, E. C. (2013). Service brand equity: cross-sectional analysis of four service schemes in Malaysia. Journal of Economics, Business and Management, 1(1). Levitt, T. (1981). Marketing intangible products and product intangibles. Harvard Business Review, 22(2), 37–44. Manhaimer, E. (2007, October 27). Brand equity—Assets and liabilities. https://ezinearticles.com/? Brand-Equity---Assets-and-Liabilities&id=803457. Öktena, N. Z., Okanb, E. Y., Arslanc, Ü., & Güngör, M. Ö. (2019). The effect of brand value on economic growth: A multinational analysis. European Research on Management and Business Economics, 25, 1–7. Onkvisit, S., & Shaw, J. J. (1989). Service marketing: Image, branding, and competition. Business Horizons, 32(1), 13–18. Oumlil, A. B., & Rao, C. P., Service marketing and the critical distribution issue: Old challenges and new solutions (pp. 1–22). Shah, A. M. (2012). Business strategies in the emerging markets. Journal of Asia-Pacific Business, 13, 4–15. Copyright © Taylor & Francis Group, LLC ISSN: 1059–9231 print/1528–6940 online. https://doi.org/10.1080/10599231.2011.616143. Williams, D. A., & Deslandes, D. (2008). Motivation for service sector foreign direct investments in emerging economies: insights from the tourism industry in Jamaica. The Round Table, 97(396), 419–437. https://doi.org/10.1080/00358530802057293 Zeithaml, V. A., Parasuraman, A., & Berry, L. L. (1985). Problems and strategies in services marketing. Journal of Marketing, 49, 33–46.

Rima Bhattacherjee is an alumna of IIM Kozhikode. She is presently the Head of Business Development and Product Delivery at Sidqam Technologies Pvt. Ltd. and has over 10 years of experience in Health Technology, Pharmaceuticals, and Life Sciences Industry. She has received her degree of Master of Physiotherapy (Orthopedics) from Dr. NTR University of Health Sciences, Andhra Pradesh. She is an avid writer, speaker and has been recognized for her significant contributions in the industry and was featured in Forbes 30 under 30 and CNN International.

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Dr. Atanu Adhikari is a Professor at Indian Institute of Management (IIM) Kozhikode teaching marketing research, marketing management, strategic marketing to post graduate students, and advanced marketing research to doctoral students. He was a doctoral Fellow member of Royal Statistical Society London, visiting researcher at Syracuse University, USA and Commonwealth Academic Fellow to London Business School, UK. He has taught as guest faculty in several premier business schools in India and abroad. Prof. Adhikari’s current area of research includes consumer choice behavior, experience product marketing, pricing, and applications of Bayesian econometrics in marketing research. He is actively involved in scholarly academic research and has published his research work in many national and international peer reviewed academic journals and edited books published by leading international publishers. His research work has been selected and presented in number of prestigious international conferences organized by Marketing Science, American Marketing Association, European Marketing Academy, World Congress in Probability and Statistics, Royal Statistical Society and similar academic forums in the USA, UK, France, Germany, Italy, China, Australia and Singapore. Prof. Adhikari’s work has received several national and international awards and honors from Academy of Marketing Science USA, Marketing Management Association USA, EFMD Belgium, Oikos International Switzerland, Ivey Business School, Canada.

Chapter 11

Traditional Services Marketing Issues—Analysis of Impact of Technology in Developed and Emerging Markets Duswanta Roy

1 Introduction People have tried to define services for more than two centuries. The definition of services has changed rapidly over the last 100 years. A simple definition could be “something which can be bought and sold but which cannot be dropped on your foot.” With the progression of time, the nature of services has evolved. As services became complex, the problems and issues around services marketing has also become complex. The services value chain has evolved into newer models. As an example, apart from the service provider and the customer, now we have aggregators, technology providers, and enablers who have become an integral part of the value chain. Take the case of Uber or Ola, and you would get a quite different service value chain than in the old days of Yellow and black cab rides. Today, apart from the cab driver and the rider there are multiple other parties who are involved in this business transaction. The way services are created and consumed has created significant challenges on how it can be marketed. How can a restaurant in one part of the city cater its services to its clients in other parts of the city, or how can a tutor sitting in India teach students in USA? The answer is technology, over the last 25 years, technology has advanced by leaps and bounce. A decade back, technology was the enabler for business, but now technology is business. Technology is creating a new landscape for companies and services marketing. There are multiple myths on services and one of them is that, it is less important on a “human needs scale” (Maslow 1954, Chaps. 5 and 8) than products. However, things have changed drastically with the introduction of technology. Be it ATM, Voice Over IP, Online shopping, technology has created new markets, new service opportunities and has solved some of the major challenges of services marketing. World’s biggest Car rental company Uber does not own any car, the most significant room rental D. Roy (B) PMP, Dallas, USA e-mail: [email protected] © Springer Nature Singapore Pte Ltd. 2020 A. Adhikari (ed.), Services Marketing Issues in Emerging Economies, https://doi.org/10.1007/978-981-15-8787-0_11

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company, Airbnb does not own any hotels, and the most prominent media distribution company, does not own or creates any media—Facebook. In each of these cases, technology helped overcome issues of service marketing, such as proximity issues, distribution issues, and delivery issues. Technology has helped create new business models, new service offerings, and trillion-dollar services markets across the globe. Businesses thrive where technology is available and suffer where it is unavailable, creating a big entry barrier for companies coming from emerging markets. Service Innovation is fueled by technology, which is changing the way people create, deliver, and consume services. The purpose of this chapter is to do a deep dive into the impact of Technology in services marketing and how it has solved traditional issues of service marketing. Look into some of the upcoming and new technology trends and the markets created by those trends. We would discuss how technology has become a core and integral part of service and services marketing. We would also investigate some of the companies from developed markets that have emerged as market leaders in the services industry by using newer technologies. In this chapter, we will cover the impact of technology in services marketing with some interesting use cases. It is vital to understand the technology trends and how it is impacting the entire services marketing. We will highlight how the absence of technology in emerging market is impacting the services marketing. By looking carefully into the issues in the emerging markets, it is possible to identify the exact areas that needs to be corrected or create alternate models.

2 Impact of Technology in Services Marketing—Traditional Issues and How Technology Solves Them Services are quite different from goods and products and there are some inherent challenges of service marketing. The principles of marketing were created initially to address goods and products where the transfer of ownership happens. In this section, we would discuss some of the core issues in service marketing and then introduce some of the technologies that are helping to solve those issues. The challenge in understanding experiential services and marketing them—It has been a constant challenge to market services as it is difficult to explain them in a product brochure. There are certain services that are extremely difficult to explain to a large audience base following the principles of product marketing. Traditionally it has been difficult to market these intangible services. The expertise of a hairstylist in a hair salon or the quality of a doctor is awfully hard to market to a larger addressable market, who have not personally used those services. A lot of these services are called experiential services and unless a consumer has experienced it, it is a challenge for the consumer to vouch for it. As these services are highly experiential hence it could be quite different experience even for the same person on different instances. On one day I could be incredibly happy with

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the food of a restaurant and the next week I may not a different dish. Marketing these kinds of services has always been a big challenge for service marketing companies. Services cannot be inventoried and are perishable in nature—The time of the lawyer, doctor, teacher cannot be inventoried and stored. The whole process of creating inventory and then storing them as SKU and marketing them fails miserably for services. If a cab is free for 1 h or if a doctor does not have a patient for half a day, then those service opportunities cannot be resold or restocked. It is lost forever, and the use of traditional marketing techniques of selling overstock goods applying discounts or channel stuffing would not be beneficial. So, the fundamental question is how you plan for a service ahead of time to be consumed when it is available so that it is not lost. This is a challenge that service marketing specialists have tried to solve through decades. Proximity Issues of services and service marketing—“For complex and high perceived risk services, people tend to rely on personal channels” Services Marketing (Lovelock, Wirtz, Chatterjee). Services are generally high touch and require proximity. A teacher teaching a student, a movie theater screening movie for viewers or a restaurant providing food in the neighborhood. Services get delivered one to one, one to many, many to one, and many to many and it is normally a direct transfer. The common understanding was, services unlike products cannot be packed, shipped, or moved to a different location using logistics and transportation companies. This poses a unique challenge for service marketing. If services need to be consumed close to the creation point, then how does one expand and grow the services without increasing the number of places where it gets produced. Does it make sense to market services outside the immediate proximity. Services often include tangible elements; however, it is some of the intangible elements that define the value creation process in services. The quality of the food draws customers more than the ambience of the restaurant, and it is this intangible element that creates the value of the restaurant. Marketing these intangible value elements poses a serious challenge for service marketing. However, with the advancement of technology a lot of the issues discussed regarding services marketing have been reduced. To understand the impact of technology, it is important to understand technologies in various aspects of services business and its associated delivery. To have an extremely focused discussion we will be covering only two major technology areas and their impact. (i) Internet—The most phenomenal technological advancement that has changed the world and the entire services industry is the Internet and the online experience. Sadly, no one got a Noble Prize for that, but, the biggest innovation in the history of humanity after electricity and penicillin is the Internet. The way people consume services and the way companies deliver services has changed entirely with the online model and the Internet. “Developments in telecommunications and computer technology have spurred many new approaches to service delivery” –Services Marketing (Lovelock, Wirtz, Chatterjee). We will look at some specific industry and use cases in the next section.

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(ii) Mobile Technology—The second technology that is revolutionizing the entire services paradigm, spanning across multiple industries is the emergence of mobile technology and smartphones. Today mobile technology is touching every aspect of our lives. It is estimated that the average person looks at his phone for nearly 700 times a day. 5G Technology is one of the most impactful changes in modern technology with numerous use cases and industry disruptions.

3 How Technology is Breaking Services Marketing Barriers in Developed Markets Service marketing is a complex process; the traditional method of product marketing is hugely influenced by the 4Ps of marketing, namely Product, Price, Promotion, and Place. In services marketing, there are no defined products but services that are highly experiential in nature. Companies and people are using technology in a unique way to market their services and overcome challenges, such as high touch and face to face service delivery. The above-mentioned technologies has entirely changed Services Marketing for various industries and have solved some of the major issues of services marketing, such as marketing the intangible elements or reaching out to a larger audience beyond immediate proximity. The use of technology and it’s adoption is evident in developed countries, such as USA, UK, Canada, Germany, and other countries. In the developed worlds, Internet, and Mobile technologies are in an advanced stage, and enterprises create service marketing plan involving these technologies. This section does a deep dive in how technology is solving the abovementioned issues of services marketing in developed nations with some interesting use cases. 3.1. Issues of understanding experiential services and marketing them—Let us look through some of the innovative businesses from developed markets those have used technologies discussed above to overcome the challenges of traditional services marketing (a) Tailoring Services is supposed to be an extremely experiential and high touch business. However, using the Technology of a smartphone and smart application M-Tailor, an online company is designing and delivering made to order garments to users at their doorsteps. M-Tailor uses its application with the help of which a user or buyer can take his or her measurements. Once done, they upload the data using the smart app, and then they choose the style, cut, fabric for their garment, and place an order. The company uses all these data to create a custom made fit to size garment for the user and deliver it to him through mail. M-tailor is just one example of services marketing and service delivery of exceedingly high touch and experiential service being offered in a complete no-touch model. With the use of mobile technology and the internet, they fulfill their services in an innovative way. All this is possible in a developed nation because the technology landscape and the service industry landscape is highly matured.

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(b) One of the most innovative technologies started by Amazon about 2 decades ago was to provide customers with an opportunity to post reviews and provide their feedback on a point scale. Along with providing details of services, pictures the review system has completely revolutionized the process of how people buy services remotely without experiencing them first hand. Most of the sites now have filters using which customers can only search for services those have high ratings. While the consumer has not used the service on his own, but as a human, the consumer would believe in the community and their reviews before making the choice. The higher the rating from a greater number of people, the better are the chances of those services being consumed. In developed nations, it is the new normal for people look at reviews before going to a restaurant or hiring a tutor. 3.2. Issues around Service Inventory—We talked about services being perishable and that it cannot be inventoried. However, with the use of technology, some of these problems have been minimized in developed nations and in some emerging markets. (a) Uber and Lyft has completely changed the way of the taxi industry. Uber alone was valued at $90B when they came out with their IPO, Lyft went public with a valuation of $24B. Ten years ago, none of these companies existed. The only reason they came into existence was due to the emergence of mobile technology. Using a GPS tracker on the phone, anyone can hail a cab and travel with ease. The technology helps riders to book cab drivers ahead of time and allows the cab drivers to define the time when they would be available. This technology can also help optimize the demand and supply of services and help match drivers and riders. As an example, Monday morning more cabs go towards the airport and Thursday and Friday evening we have huge numbers of a cab coming from the Airport. The technology enables Uber and Lyft to push more cabs towards the regions of demand during those specific times. So, with technology it is possible to treat service as a product, use in inventory and sell it to customers. (b) The internet transfers power from suppliers to customers, especially in consumer markets.2 Internet has changed the way services are consumed now. Online bookings of various services have created a unique way of marketing services and have addressed the challenges of services being wasted or perished. A doctor or a lawyer sells their expertise as services and it is usually billed based on the amount of time spent with the client. While the actual product sold is the knowledge and the experience, the amount of revenue generated is based on the number of clients handled by them and using their time in an optimum way. These providers ensure that they do not turn away clients due to unavailability/rush or due to too much wait time. With online booking systems and with the use of internet and smartphones the service providers can update their availabilities realtime which can be blocked by the consumer ahead of time. These systems also let the customer know if earlier times are available. This solves a big problem of service marketing and is now quite common in developed nations where people have access to Internet and smartphones.

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3.3. Proximity issues—The technology has evolved and redefined some of the industries completely. (a) Traditional Media and entertainment industry had a very well-defined value stream, Creation—Aggregation—Distribution and Consumption. However, with the emergence of internet technology, this value stream has been altered completely. Facebook live is an excellent example of creation and consumption happening in real-time without the process of aggregation or distribution. The entire Media streaming has short-circuited the whole distribution and consumption process. The whole model of how content is delivered to the end-users has changed completely. People now get what they want, when they want, and where they want with just a click of a button. Companies such as Netflix, Amazon Video, Hulu, Vudu only exist because of the impact of internet technology, and have completely redefined the way service is marketed and delivered. The entire service cycle from searching a movie, to buying it and finally watching it, is happening online. This new model was unimaginable a few years back. The whole content streaming platform solves a big issue of services marketing which was proximity based. Now to watch a move the customer does not go to a nearby cinema hall during a particular time and day but can watch anytime, anywhere. (b) The online platforms for teaching have created new ways of distributing services which have no constraint on location. The growth of online education in developed nations has been phenomenal in recent times (Table 1). With the current COVID-19 situation, most of the colleges in developed nations have switched on to online class mode for delivering the services. Education platforms such as Coursera, Udemy have broken the barrier of time and place. Anyone, in any part of the world can access the lectures, do practical’s and appear for proctored exams online. Online colleges and online degrees are becoming mainstream and prestigious institutions such as Harvard and MIT are shifting their courses on to online platforms. The data shows that 40% of US graduate students take at least some of their courses using the online platform, this is followed by 34.5% four-year undergrad and 33.8% of two-year undergraduate students (Table 2). The modern technologies of Internet and mobile has given new models and dimensions to traditional service marketing. Embracing these technologies developed nations have created significant competitive advantages over the companies coming from emerged countries.

4 Emerging markets—The Lack of Technology and the Competitive Disadvantage The adoption of technology in emerging markets is still in its early stages. As the penetration of technology is very localized in the urban market, a lot of the service models

65.30

2,817,914

3,677,589

Not exclusively distance education institutions

Enrolled in some, but not all, distance education courses

Not enrolled 13,071,185 in any distance education courses

Source Inside Higher Ed3

18.40

441,646

Exclusively distance education institutions

14.10

2.20

3,259,560

16.30

20,008,434

Enrolled exclusively in distance education courses

% of 2018 total (%)

All students

2018

13,480,913

3,552,651

2,703,529

401,384

3,104,913

20,138,477

2017

Table 1. US federal data on distance education enrollments

66.90

17.60

13.40

2.00

15.40

% of 2017 total (%)

3,330,529

13,919,299

−3.00

2,582,163

398,021

3.50

4.20

10.00

2,980,184

20,230,012

−0.60 5.00

2016

% Change, 2017–18 (%)

68.80

16.50

12.80

2.00

14.70

% of 2016 total (%)

−3.10

6.70

4.70

0.80

4.20

−0.50

% change, 2016–17 (%)

−3.10

6.70

4.70

0.80

4.20

0

0

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Table 2. Distance learning enrollments by programs 2018

% of 2018 total (%)

2017

Undergraduate

16,972,521

17,133,000

4-year

10,865,098

10,818,442

Enrolled exclusively in distance education courses

1,519,949

Exclusively distance education institutions

275,798

Mot exclusively distance education institutions

1,244,151

11.5

Enrolled in some, but not all, distance education courses

2,232,239

Mot enrolled in 7,112,910 any distance education courses 2-year

5,849,134

Enrolled exclusively in distance education courses

805,872

Exclusively distance education institutions

3,764

Mot exclusively distance education institutions

802,108

14.0

% change, 2017-18 (%) −0.9 0.4

13.5

4.0

2.3

12.4

1,216,395

11.2

2.3

20.5

2,114,610

19.5

5.6

65.5

7,242,172

66.9

−1.8

2.5

1,461,660

% of 2017 total (%)

245,265

−3.4

6,057,268 13.8

0.1

13.7

773,772

3,501

770,271

12.8

4.1

0.1

7.5

12.7

4.1

(continued)

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Table 2. (continued) 2018

% of 2018 total (%)

2017

1,169,159

20.0

1,161,338

19.2

0.7

Mot enrolled in 3,874,153 any distance education courses

66.2

4,122,108

68.1

−6.0

Enrolled in some, but not all, distance education courses

% of 2017 total (%)

Graduate

3,035,913

Enrolled exclusively in distance education courses

932,845

30.7

868,708

28.9

7.4

Exclusively distance education institutions

162,034

5.3

152,534

17.6

6.2

Mot exclusively distance education institutions

770,761

25.4

716,124

469.3

7.6

Enrolled in some, but not all, distance education courses

274,520

9.0

274,211

38.3

0.1

679.2

−1.8

Mot enrolled in 1,828,548 any distance education courses

3,005,477

% change, 2017-18 (%)

60.2

1,862,558

1.0

Source Inside Higher Ed4

and services are nonexistent. In countries such as India or Bangladesh, internet penetration, and access to smartphones are still in the incubation stage. While Uber is available in most of the US states and cities, it is only available in a few metro cities in India. In rural parts of India, where there is minimal internet presence, online service marketing does not work. In recent times Food delivery services such as Food Panda, Uber Eats, Yelp are only operating in a few metro cities in India where the technology elements are available to the market to deliver their services.

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IT has great potential to improve service marketing using internet and mobile technologies, as mentioned in the previous section. There is unequal access to information and communication technology between developed and developing nations (Macharia and Gituru 2006). While innovative services are being developed and marketed in developed countries, it is unfortunate that those services are not available in the emerging market. In this section, we will investigate some of the fundamental reasons for the poor adoption of technology causing issues in service marketing in emerging markets.

4.1 Government Policy There is now a global increase in internet penetration due to government-led initiatives and private efforts (Andrade and Urquhart 2009). In developed countries, IT has been used to create a strategic advantage in business and various operations (Apulu and Latham 2009). The development of IT infrastructures in emerging economies has been lagging from those in developed countries because of poor policies and insufficient investments in the IT sector (Laryea 1999). While some countries such as India and the Philippines have created ministries and allocated resources, most of the other emerging countries in Asia and Africa are far behind. With the current economic condition in the emerging economies, IT is not a priority for them. There is no clear IT policy nor significant funding has been allocated to develop IT. Emerging countries have IT policies that are not effective, and this has created problems in the growth and application of Information Technology. Governments of these countries acknowledge the need and importance of IT, but no concrete action has been taken in this area (Enakrire and Onyenania 2007). Most of the emerging countries do not have resources to develop their IT infrastructure and they have hardly received any help from the developing nations (Laryea 1999; Nwaka 2005). Due to these challenges, there is a significant gap between the IT environment of developed nations compared to the emerging markets, impacting the overall business environment and service operations.

4.2 Lack of Infrastructure Due to the issues in policies and lack of resources, most of the emerging nations do not have the basic infrastructure in place to develop a robust IT network. This creates hurdles in having good quality internet and mobile networks in these countries. Poor basic Information Technology infrastructure is the major cause of stagnation to the development of Information Technology in African and other developing countries (Omekwu 2003). In developed nations, IT has become a necessity, and the lack of it in emerging markets are having serious implications. The issues of services proximity and its marketing persist heavily due to the lack of basic internet and

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telecommunication networks. Car rental companies or movie streaming companies are hardly present in the emerging markets. In some countries, their presence is limited to an extremely specific urban population. People in rural areas or villages still do not have access to telemedicine or online education. During present times this issue has become a burning one in the emerging markets. In the current COVID-19 scenarios, as there are minimal or no models for online education kids are forced to go to school to get their education. Lack of internet and mobile technology in developing nations is impacting business, services, and marketing of those services. The below chart (Fig. 1) clearly displays the pathetic situation of internet penetration across the emerging markets and the difference with developed nations. Both Asia and Africa consisting of large emerging markets are below the world average in internet penetration which has now become the most important pillar of the modern IT Infrastructure. In most of the emerging markets, the major point of internet access in rural areas are cybercafes with poor internet and computer infrastructure (Ejiaku 2014). Issues such as poor telecommunication networks and power shortages in the emerging markets also play a big role in this poor status of the IT infrastructure. Due to these situations, the issues of service marketing are still very prevalent in emerging

Fig. 1. Internet world penetration rates

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markets. One can argue that the better infrastructure for IT including internet and telecommunication is creating a flywheel effect for developing nations in helping the business grow and creating a competitive advantage.

4.3 Lack of Training and Education One of the major contributors to this dismal state of technology in an emerging market is the lack of skilled manpower. Lack of skilled resources is a major hurdle to IT adoption in emerging markets. Technology industry can only flourish when you have an ecosystem of the right skill and talent. Based on the latest estimates, computer literacy in India is just 6.5% and less than 10% internet penetration. Emerging markets lack skilled IT professionals who can design IT systems, implement, and maintain them. Based on the study done by LinkedIn5 computer literacy is an important skill for professional entry-level jobs. Exhibited in Fig. 2, computer literacy skills (MS Office, PPT, basic programing) comprise roughly 20% of the top 20 skills in demand in South Africa and Indonesia, while in India it is only about 5%. The reason is the maturity of the market and the available talent pool. IT revolution started in India in early 1980s making it a more mature market now. However, most

Fig. 2 In-Demand job-related skills, classified by skills groupings (% share among top 20 skills). Source LinkedIn Skill Gap Report5

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of the emerging markets still have a major deficit in the amount of technically skilled workforce. The reason can be attributed to the population, lack of proper education, and resources to create a skilled IT professional. It may be easy to transfer equipment’s or machines from developing nations to emerging markets, however, without the technical skills and resources technology adoption would remain a big challenge. Udo and Edoho (2000) noted that technology transfer takes place when the recipient country has corresponding technical information to enable it to use the hardware in an effective and efficient manner. The lack of skills makes it hard for companies to adopt new technologies for effective services marketing. While in the urban areas some issues of service marketing has been addressed—like e-commerce, cab rental, online portals, however this does not cover the vast rural areas and the businesses around them.

5 Conclusion This situation is not only bad for the economy or business but also denying users getting truly relevant services. Based on the model of Khan Academy, which uses YouTube videos to teach complex mathematics and other subjects to school and college students, online tutoring has become extremely popular in developed countries. One to one or one to many services provides students and children access to excellent tutors and helps them study. This is particularly important and relevant for countries, such as India, where a lot of the students are the first generation to go to school and colleges, and have no access to quality education or help from their parents. Unfortunately, due to the lack of technology infrastructure, these unique and essential services are not available, forcing many students to give up studies or go to expensive private tutors, putting a significant financial burden on their parents. Let us think about the possibilities of providing all the knowledge of the world at the fingertips of the next generation of students using Technology. Technologies discussed throughout the chapter have amazing powers and have changed the way people experience their lives. A son in USA can send money to his parents in India using online transfer in minutes that can mean a timely treatment at the hospital, saving lives. A child can talk and see his dad using WhatsApp even when he is not around, a smartwatch sensor can detect a heart attack and call emergency providers in time. In businesses; it’s never about Technology; its always about solving human problems. Businesses are built around solving problems of users, and technology makes that happen. We believe in an equal world where everyone has access to similar resources making their lives better; unfortunately, that’s far from reality. To improve the situation countries in the emerging markets should focus on. (i) Right Government policies and resource allocation to develop the IT industry (ii) Significant investment in building infrastructure including communication systems, internet systems that can reach out to the mass of the countries and not remain confined in the urban areas.

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(iii) Create an education and skilling system that can train the youth in modern IT technologies. There is no dearth of talent or smart people in emerging markets, but there is a severe lack of knowhow, access to technology, and tools. Once the government provides the technology infrastructure, we will see more and more businesses and companies being created in the emerging markets trying to solve local problems using technology. With the availability of Technical Infrastructure and the potential of a bigger market, we would see more and more innovative global businesses operating in emerging markets and creating a bigger economy. In India, we still rely on the “Juugad” model, and we try to put a band-aid on wounds those need stitches. An organ donor in Chennai could be matched to a recipient in New Delhi using technologies already available in the developed countries saving millions of lives. Services and businesses such as M-Tailor, Online Tutoring, which are highly experiential service, can be conceived and delivered in the emerging markets if technology is made available in this market. The whole Small and Medium business landscape of emerging markets will change if they shift their focus to services marketing and delivery using e-commerce. The market size and the economy could grow and reach heights, which we had never imagined, as with technology possibilities are limitless. So, the ask to organizations, institutions, and governments of emerging countries is to focus on building a high-end technology infrastructure that can make the future happen today. End Notes 1. Evert Gummesson (citing an unknown source), “Lip Service: A Neglected Area in Services Marketing” Journal pf Consumer Services, No. 1, Summer 1987, 19–22. 2. “Crowned At Last”, The Economist, April 2, 2005, 3–6. 3. Services Marketing (Lovelock, Wirtz, Chatterjee). 4. “Online Enrollments Grow, but Pace Slow”, Inside Higher Ed, Doug Lederman, Dec 11, 2019. 5. “Online Enrollments Grow, but Pace Slow”, Inside Higher Ed, Doug Lederman, Dec 11, 2019.

References Andrade, A. D., & Urquhart, C. (2009). ICTs as a tool for cultural dominance: Prospects for a two way street. The Electronic Journal on Information Systems in Developing Countries, 37(2), 1–12. Apulu, I., & Latham, A. (2009). Information and communication technology adoption, challenges for Nigerian SMEs. TMC Academic Journal, 4(2), 64–80. Ejiaku, S. A. (2014). Technology adoption: Issues and challenges in information technology adoption in emerging economies. Journal of International Technology and Information Management, 23(2), Article 5. https://scholarworks.lib.csusb.edu/jitim/vol23/iss2/5.

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Enakrire, R. T., & Onyenania, G. O. (2007). Factors affecting the development of information infrastructure in Africa. Library High Tech News, 2, 15–20. Laryea, E. T. (1999). The technological challenges facing developing countries in the move to paperless international trade. Bond Law Review, 11(2)10. Macharia, J., & Gituru, F. (2006). Determining appreciation of information technology systems. the African Executive, 76, 1–3. Nwaka, G. I. (2005). Higher education, the social sciences and national development in Nigeria. In: Presented at the 11th General Assembly of the Council for the Development of Social Science Research in Africa (CODESRIA). Maputo, Mozambique. Retrieved September, 20, from https://www.codesria.org/Links/conferences/general_assembly11/papers/nwaka.pdf# search=%22higher%20education%20collaboration%20nigeria%22. Omekwu, C. (2003). Current issues in access documents published in developing countries. MCB University Press, Lagos. file://A.Emerald. Udo, G. J., & Edoho, F. M. (2000). Information technology transfer to African nations: An economic development mandate. Journal of Technology Transfer, 25, 329–342.

Duswanta Roy is a Global Business Leader with one of the largest technology companies of the world. He has been working in the technology industry for the last 20 years. He has been fortunate to work for three of the top Technology companies HP, Microsoft, and Amazon. Duswanta has seen the impact of Technology on services marketing first-hand. He has helped many enterprises in identifying the right tools and Technology for marketing their services. Duswanta is also a regular keynote speaker in Technology Conferences. Duswanta holds a MS degree in Electronics from the University of Calcutta and a MBA degree from IIM- Kozhikode. He is based out of Dallas, USA.

Chapter 12

Marketing Mix and Customer Loyalty in Services Marketing Rahul Gupta Choudhury

1 Introduction Services marketing is comparatively of recent vintage in the area of marketing. While the marketing area has developed now for more than a century, services marketing has really started developing from the 1960s onwards. Coincidentally, the situation is the same as the concept of marketing mix. Borden developed the concept of the marketing mix in 1957 and then this concept has gone through many modifications and iterations to arrive at its present form. It is noteworthy that both, services marketing as well as marketing mix, has now become an integral part of marketing—both, from the theory as well as the practice point of view. Marketing mix as well as services marketing has grown in stature over the years and has been instrumental in guiding and directing the course of development of the marketing area in general. Services marketing has grown as the economy, especially that of the developed countries, has evolved from manufacturing (and, consequently, product marketing) to an economy driven by services. The trend is not restricted to developed countries only. Even in emerging markets such as India, a considerable percentage of the Gross Domestic Product is contributed by the services sector. So, as services grew in importance, so did services marketing. At the same time, marketing mix, which was particularly suited to product marketing—was continuously modified and has evolved over the years to remain relevant from the perspective of services marketing as well. The differences in standards of service marketing between developed and emerging markets are for all to see. The tourism industry has been developed so well in Europe and the USA. In today’s era of digital marketing and social media, the quantum and quality of information available if one wants to visit Europe or the USA is much more than adequate. Just about everything about the trip can be done from the visitors’ home only. At the same time, the difficulties faced by visitors when they plan to visit India R. G. Choudhury (B) International Management Institute (IMI), Bhubaneswar, India e-mail: [email protected] © Springer Nature Singapore Pte Ltd. 2020 A. Adhikari (ed.), Services Marketing Issues in Emerging Economies, https://doi.org/10.1007/978-981-15-8787-0_12

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is quite well-known. Additionally, there is the real challenge of fake information being fed to gullible visitors from abroad. Whatever be the level of development of the service marketing mix, there is no doubt about its importance in building service brands and developing customer loyalty.

2 Service Marketing What is pertinent here to recall is the acknowledgment of the fact that every marketing offer is a combination of product and service. In today’s world of marketing, there are very few pure products and pure services. So, any discussion on services marketing will also encompass service associated with goods as well. Marketing is defined in one way as the process of creating value for consumers. So, what the consumer buys is the value offering of the manufacturer or the service provider. The consumer buys the total package or the complete value offering rather than just the manufactured goods or the service provided. So, a customer buys a mobile phone not only for the instrument but for the benefits that he derives from using the instrument—that is, the ability to communicate as and when he wants, coupled with many other ancillary benefits that the smartphone nowadays offers. A buyer of a color TV set requires the services of a DTH operator as well as the service offered by the manufacturer for the proper installation of the TV set in his home. The customer is also dependent on the service offered by the manufacturer should the TV set malfunction in any way. It is seen in many instances that the brand choice of the prospective customer depends heavily on the reputation of the manufacturer for providing quality service to its customers. The iPhone was sold in India by stressing on the powerful camera feature of the smartphone. Consumers still visit KFC or McDonalds not only for their products but also for the service scape and other service deliverables of the brand. Customers value the 1-min service of McDonalds so much that the entire genre of this kind of service, mainly food products and beverages, is called “fast food.” Customer loyalty for this kind of brands have been legendary and has made them world brands—brands which are consumed in all countries all over the world.

3 Marketing Mix Marketing mix helps the manufacturer or service provider to position their offerings in the minds of prospective customers. Thus the perception and expectation of the customer in relation to the service offering is often influenced by the marketing mix deployed by the service provider. This management of the perceptions and consequent expectations of the customer from a particular service offering is crucial for the service provider as the evaluation by the consumer about the performance of the offering is dependent on this positioning by the service provider. For example, a customer should not expect five-star quality service from a value-for-money hotel.

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A low-cost carrier cannot afford to provide full service to the fliers—and, the fliers should not be misled to believe that they will receive full service in the low-cost carrier airline. This is where the marketing mix plays a very important role—it sets the tone of expectations from the service provider by its prospective customers. Setting unrealistic expectations lead to disappointments which further leads to erosion of equity of the brand. It is much better to over deliver than it is to underperform. Exceeding the expectations of the target segment is always a good strategy for service providers. However, for this, the expectations of the target segment should also be set carefully through the proper use of the marketing mix elements. One of the outstanding campaigns of recent times has been done by the state of Kerala. The “God’s own Country” campaign has been a very successful and clever use of service marketing mix which catapulted the state straight into the minds of travelers across the country and even abroad.

4 The Additional Ps Marketing mix is very commonly referred to as the 4Ps in marketing. The 4Ps are product, price, promotion, and place. This concept emanated from the background of product marketing. However, as services marketing gained in importance, the marketing mix concept slowly adapted itself to the new paradigm. However, primarily keeping services marketing in mind, the 4Ps were expanded to become the modern 7Ps. The 3Ps that were added in due course of time were people, processes, and physical evidence. People—especially the employees—are extremely important for the delivery of quality service and more often than not, customers develop a relationship with the service provider which, in turn, makes them a loyal customer. Processes are also very important for a service provider as it ensures the consistency of the quality of service. If the consistency is high, the customers find it easy to engage with the service provider. Domino’s Pizza ensures delivery of piping hot Pizza every time within 30 min of placing the order. This service, along with the quality of the Pizza offered by them, made Domino’s such a popular food brand in India within a very short time span. Then there is physical evidence which means the environment or the ambience at the place of the service. The customers at a McDonalds or a KFC outlet expect it to be neat, clean, and attractive as this signifies that the outlet cares about the health and overall quality of their offering. This is important in services marketing or in the marketing of services as the overall offering must not only fulfill the needs of the customers, but also at least meet the overall expectation of the customers. It is even better if the perception of the consumers is that the service provider exceeds their expectations consistently over a period of time. For large scale service providers, the service quality must be the same irrespective of the geographical location of the customer. A McDonald customer would expect the same level of service irrespective of whether he is in the USA or in India.

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5 Literature Review The ultimate aim of any marketing mix program is to build brand equity and develop customer loyalty. Noor (2020) in a survey done in Indonesia found that service quality has a positive and significant effect on customer loyalty. It is not that the service department works alone for customer satisfaction in an organization. It also helps other departments to perform better when working together. Claro (2018) in a study in Brazil found that sales performance is much better when the sales department has many ties through networks with customer service. However, results are better when the collaboration between sales and customer service is on the weaker side. Many weak ties of salespersons with service boost performance. The relationship is U-shaped—so, there is an optimal number of relationships or ties in a given situation. Laing and McKee (2001) found in his research in the health sector in the United Kingdom that the professional staff at the point of interaction with the customer of the service provider also needs to act as a marketer, which they are reluctant to. The reason is that mostly they have concern over professional autonomy and language. In a seminal paper on service marketing, Zeithaml et al. (1985) points out that there are important differences among service firms and not necessarily between service and goods firms only. They also noted that service firms supplying to institutional customers are more marketing savvy than those service firms dealing directly with the end consumer. For all the service firms, the most problematic aspect was the fluctuation in demand. The most critical aspect for the service firms was word-ofmouth communications as prospective customers depended a lot on feedback from existing customers of the service firm. Bailey et al. (2009) discuss the current relevance of market segmentation in the UK in the domain of service marketing. They note that individualized customer analytics and propensity modeling are increasingly being used for specific communication to customers. This increases the chance of customers’ uptake of particular propositions by the service provider. Chandratre (2015) discuss service marketing with particular emphasis on library services. They put more stress on building long term relationship with the customers. In a study of 176 SMEs in China, Chong et al. (2016) found that five e-marketing services (eCRM, e-SCM, e-competitiveness, IS/IT integration, and information transparency) greatly influence e-marketing performance. Innovation positively mediates the relationship between e-marketing services and performance; and knowledge complexity and environmental turbulence positively moderate the relationship. According to Woodside et al. (2017), the IoT (Internet of Things) will lead to a paradigm shift in the S-D (Service Dominant) logic. The coming together of the Agile approach with design thinking and SCRUM technologies will change the way service marketing operates today. Bettencourt et al. (2014) talk about the role marketing should play in order to create a strategic advantage for the firm. He puts a service lens on the value creation process in firms. The authors define service as that which is always hired to get a job done. Since implementing a service lens involves a change in perspective about how and when the value is created, companies has to give special focus on how to embed a

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service lens in existing systems and processes. Hsu et al. (2019) studied the car rental business as well as opaque selling channels, such as Priceline and Hotwire. It was found that the contribution of car rental experience to traveler satisfaction is likely to be higher for price-sensitive customers and/or low-income customers without time constraints. Traveler experience is augmented when the coordination between opaque selling channels and car rental firms are higher. McKeage and Charles (2013) studies a retail store in small town USA and comes up with the conclusion that role-playing is important to forge a long-term relation with the customers. That also means that the supplier must establish a connection with his clients and must be authentic, especially in situations that demands a particular positioning in the minds of the consumers. Balta (2018) stresses the need for internal marketing in service-oriented firms. The frontline employees are the first point of contact with the customers and hence they must remain satisfied and happy. It is borne out by his research that internal marketing is the best way of gaining loyalty and long-term commitment of qualified, talented, and experienced staff. In a study of the US automobile market from 2009–2015 (Becerril-Arreola et al. 2017), it was found that when the emphasis was on relational service satisfaction, the market share of services goes up but the market share of goods decreases. Again, if emphasis is given on the service environment, the market share of services comes down. Moreover, it was seen that in case of hybrid offerings, the quality of the goods acts as a moderator in all these relationships. In another study in Cambodia (Fang 2014), it was seen that consumer well-being was enhanced by using mobile phones for financial services offerings. This happened by influencing market exchange activities which further impacted social network relationships. Oyewole (2018) studied the phenomenon of International Marketing of Services and is very hopeful that the prospects of developing countries in this domain are very bright. Travel, transport, and communications services are the major areas where developing countries have particularly bright prospects. There are quite a few recent papers pertaining specifically to the linkage between marketing mix and services marketing. Mukherjee and Shivani (2016) proposed a service branding model. The authors found that perceived service quality positively influences brand equity. Again, perceived service quality is positively influenced by advertising, word of mouth, employees, and physical evidence. Islam et al. (2013) found that while there is a strong relationship between marketing mix and customer loyalty, it is significantly moderated by customer service quality. Hu (2011) studied customers of four retail chains in Taiwan. The author found that brand equity, marketing mix strategy, and service quality has a significant and positive relationship with customer loyalty. In case of sports, especially sports which are dependent on the facilities provided, “place” plays a very important role in the marketing of the sport (Westerbeek and Shilbury 1999). These kinds of sports events also becomes a sort of outlet for social interaction and enjoyment and hence service marketing strategy becomes important. One important observation (Yelkur 2000) about service marketing is that the customers experience service through the marketing mix and the

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most important elements of the marketing mix are place, physical evidence, participants, and processes. Long back, Lambert and Harrington (1989) predicted the importance of the interaction between marketing and logistics or customer service and that providing good customer service will become the future battleground. Klopper et al. (2014) conducted research on car rental agencies in South Africa. They found that the performance of employees in providing service to the customers played an important role in building brand awareness of the agencies. Srisook and Panjakajornsak (2017) studied the competitiveness of low-cost carriers (LCC) airlines in South-East Asia. They came to the conclusion that the most important role for competitiveness is played by the service marketing mix. Melnic (2017) studied the banking sector in Transilvania and came to the conclusion that the customers are becoming more sophisticated and demanding. As a result of this, the focus is more on the development of the three comparatively new factors of service marketing mix— namely, personnel, presence (physical evidence), and process. These, according to her, are the most challenging to develop as well. Heidari (2017) studied the influence of service marketing mix on sales of a large corporate in Iran. He found that the service marketing mix has a positive and significant effect on sales. The most important factor is the product followed by people, price, place, and productivity in that order. Mukherjee and Lee (2016) studied the B2B market (IT Services market) in the USA. They found that servicescape and service personnel has a substantial impact on the brand equity of these firms. The other factors which are important are price, personal selling intensity, and service delivery channel intensity. In the social marketing area, Kesavan and Vanniarajan (2016) surveyed the bankers and the beneficiaries of services marketing for financial inclusion in the state of Tamil Nadu in India. They found that the services offered to the beneficiaries were falling short of their expectations and hence the objective of financial inclusion was not getting fulfilled. Hu (2012), in his research in Taiwan, was investigating the relationship service quality and customer loyalty. He found that brand equity moderated the relationship, and marketing mix strategy partially mediated the relationship.

6 Health Care Systems In the modern health care systems, earning the trust of the “customers” is crucial. However, so far, the system has behaved mostly in the same manner as many other services and even product brands. The communication strategy was to give information and spread awareness. This is no longer sufficient. It is no longer sufficient to just convince the “customer” that the services provided are competent enough and can be relied on by the “patient party.” Now, the “patient party” must also be sure that the offering of the service provider fulfills the need of the customer. This is an important shift. The “patient” is now a consumer and has his rights. Earlier, the doctor was an authority figure with the power equation totally in his favor. Now it is a more equal balance of power where the consumer has access to a lot of information. So, the consumer is now in a position to have access to a lot of comparative data

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about the quality of health care provided by the hospital as well as the suitability of a particular doctor to the specific needs of the consumer. The consumer takes an informed decision based on the likelihood of the fulfillment of his requirement by the particular health care provider. Thus, there exists the phenomenon of heart patients traveling all the way from West-Bengal to Narayana Hridayalaya in Bangalore city. The primary reason for this is the reputation of the expertise of Dr. Devi Shetty, who used to practice earlier in Kolkata (West-Bengal). A very important reason is also the overall service quality of the private hospital along with a pocket-friendly expense budget for the middle-class Indian. The phenomenon has grown so much that we are now discussing “medical tourism.” This is a phenomenon where patients from different parts of the world are coming to India for their treatment. It is undoubtedly true that the health infrastructure in the USA is far better than that in India. But, medical treatment in the USA is very expensive and an average US citizen finds it much cheaper to get the treatment done in India. This also goes to prove that India, in certain segments, is able to provide healthcare at par with developed countries. However, price is again a big determinant of who gets to avail of these services. Sometimes, patients come from less developed countries as well and these are customers who want the best service and can afford to come to India for their healthcare or some special treatment and procedures.

7 Retail In today’s economy, services contribute heavily to the overall economic activities of the country and are quite a dominant player among all the various economic activities. Since services have assumed such huge proportions, the number of different activities that services encompass is also very diverse. The interplay of the elements of the marketing mix with the services takes different dimensions and combinations depending on the specific services activity. Retail is a major service activity where the location of the store is perhaps the most important factor for the success of the store. In case of a call center, location hardly matters as the consumer never visits the call center personally. In case of the retail store, the factors which affect the results do go according to the traditional marketing mix elements, however with a slightly different perspective. The products stored in a retail store is very important, but what is of critical importance is the assortment of products. Similarly, pricing in a retail outlet is very important, but what is of critical importance is that the entire ambience of the store should reflect the positioning of the retail store and also reflect the pricing strategy of the store. This is because consumers choose a retail store on the basis of the image or perception that they form in their minds about the retail outlet. This process of image formation is very complex and hence the objective of the retail store is to use all elements of the marketing mix in such a way that there is the synchronization of the entire outward communication, including word of mouth, in order to present a single unified image of the store in the minds of its prospective consumers.

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8 The Movie Business In more ways than one, services marketing is changing and is also changing the way it is interacting with the product. In film production, product placements have already become a major source of funding. Many movies are being made where the major source of funds are the products placed in strategic scenes of the movie. Advertisers are also being requested by many movie houses to co-create the movies they are interested in. While the primary perspective is that of raising funds for the movie, the advertisers also understand the power of the movie to pull consumers into the consumption of the product or service being displayed at strategic locations of the movie. The next question of course will be about the quantum of creative license or influence that will be permitted or demanded by the advertiser in the content of the movie. These are issues that will soon become very pertinent—the quality and quantity of the use of the marketing mix elements in the services industry, especially in the marketing of services. All movie-going Indians remember the way the country of Switzerland was displayed and marketed by film-makers of the Mumbai film industry. The result was a big boost for the tourism industry of Switzerland and Indians were and still are a significant portion of the tourists visiting Switzerland every year. This is the ideal use of the service marketing mix for developing brand awareness and building sustained customer loyalty.

9 Social Marketing One very important part of service marketing in developing countries is social marketing. The experience of WHO or UNICEF in providing free vaccinations to eradicate certain diseases in developing countries such as India or the Philippines (Mendoza 2015) has been very challenging. These organizations provide free vaccinations against Polio, Tuberculosis, Hepatitis-B, etc. The target segments vary from infants to the old and are normally at the bottom of the income scale. The diseases are vaccine-preventable and yet, the utilization and completion rates remain very low. What is responsible for this situation is the monitoring and enforcement costs— which also arise because the basic health care infrastructure in these countries is quite poor. This is especially true for the rural sector as compared to the urban population for whom search and information are easier and also less expensive. So, the first step, without doubt, is to improve the health care infrastructure, particularly in the semi-urban and rural sectors. Then the costs of delivering and implementing the projects need to be managed, possibly with public–private partnerships. Last, the promotional aspects will play a critical role in raising awareness about the availability as well as the effectiveness of the vaccines. The governments need to invest here as it should be the first to understand and appreciate the social costs of these

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vaccine-preventable diseases. The major objective of this social marketing exercise would be to sensitize the target segment and induce an attitude and behavior change toward these offerings. Creative social marketing will induce this requisite change in the consumption behavior of the target segments.

10 Discussion and Conclusion Service marketing is now firmly established in marketing with clearly drawn demarcation with product marketing. The people, the place, and the processes of service marketing are being studied now much more closely. The service marketing mix is on one side indispensable for the service brand, and on the other hand, gives the brand a unique positioning in the minds of the consumers. This unique positioning is what is most important as this makes the brand memorable in the minds of the customers. It builds brand awareness and finally results in customer loyalty. The researches in this area clearly bring into focus the importance of internal marketing in case of service marketing. So, the people in the service process helps the brand to influence and impress the customer in a way that makes the customer make repeat purchases of the service brand. The repeat purchase of the service brand is also dependent on the place and the processes of the firm. So, quite obviously, service quality is of utmost importance. It has been highlighted that customer loyalty is built when there is no gap between the promise and the value delivered. Now, in service marketing, it is not only about what is being delivered, but how is it being delivered. There are several models such as SERVQUAL, etc., to understand where the service process may go wrong, but the essential point is about customer loyalty. It is absolutely necessary to have the customer as the focal point of the firm and all its marketing activities. So, the service marketing mix will consistently deliver service quality which will be at least equal to the expectations of the customers. This level of service quality combined with other relevant and important aspects of the service marketing mix builds brand awareness and finally results in customer loyalty for the brand. This phenomenon is generic and is applicable to all brands, irrespective of the level of development of a particular geographical location. However, the level of quality of service differs from developed to developing countries and hence, it is necessary for the firm to tailor the service marketing mix according to the profile of the customers and the level of development of the concerned geographical location.

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References Bailey, C., Baines, P. R., Wilson, H., & Clark, M. (2009). Segmentation and customer insight in contemporary services marketing practice: Why grouping customers is no longer enough. Journal of Marketing Management, 25(3–4), 227–252. Balta, S. (2018). The influence of internal marketing on employee satisfaction in the service industry. Business Management Dynamics, 8(1), 12–15. Becerril-Arreola, R., Zhou, C., Srinivasan, R., Seldin, D. (2017) Service satisfaction-market share relationships in partnered hybrid offerings. Journal of Marketing, 81, 86–103. Bettencourt, L. A., Lusch, R. F. V., Stephen, L. (2014). A service lens on value creation: Marketing’s role in achieving strategic advantage. California Management Review, 57(1). Chandratre, S. V., Chandratre, M. S. (2015). Marketing of library and information services. Journal of Commerce & Management Thought, 6–1, 162–175. Claro, D. P. (2018). Ramos, C. (2018). Sales intrafirm networks and the performance impact of sales cross-functional collaboration with marketing and customer service. Journal of Personal Selling & Sales Management, 38(2), 172–190. Conradie, E., Roberts-Lombard, M., & Klopper, H. B. (2014). Brand awareness in the services sector influenced by eight internal marketing elements. Journal of Global Business and Technology, 10(1). Fang, J. (2014). Russell, Roslyn, Singh, Supriya, Exploring the impact of mobile money services on marketing interactions in relation to consumer well-being in subsistence marketplaces-lessons from rural Cambodia. Journal of Marketing Management, 30(5–6), 445–475. Heidari, H. (2017). Investigating the effects of pricing and productivity on sales. International Journal of Economic Perspectives, 11(1), 930–936. Hsu, Y.-L., Lin, Y.-H., & Lin, Y.-L. (2019) Impact of opaque marketing of car rental services on traveler satisfaction. International Journal of Organizational Innovation, 11(3). Hu, Y.-J. (2011) How brand equity, marketing mix strategy and service quality affect customer loyalty: The case of retail chain stores in Taiwan. International Journal of Organizational Innovation, 4(1). Hu, Y.-J. (2013). Using structural equation modelling to evaluate a consumer behavior model: The case of retail chain stores in Taiwan. International Journal of Organizational Innovation, 6(1). Islam, M., Yang, Y.-F., Hu, Y.-J., & Hsu, C.-S. (2013). Marketing mix, service quality and loyalty— In perspective of customer-centric view of balanced scorecard approach. 18(1). Kesavan, D., & Vanniarajan, T. (2016). Sona Global Management Review, 10(2). Laing, A., & McKee, L. (2001). Willing volunteers or unwilling conscripts? Professionals and marketing in service organizations. Journal of Marketing Management, 17, 559–575. Lambert, D. M., & Harrington, T. C. (1989). Establishing customer service strategies within the marketing mix: More empirical evidence. Journal of Business Logistics, 10(2). McKeage, K. K. G., & Charles, S. (2013). Relationships, roles, and consumer identity in services marketing. Services Marketing Quarterly, 34, 231–239. Melnic, E.-L. (2017) The emergence of the marketing-mix in the banking sector. Bulletin of the Transilvania University of Brasov—Special Issue, Series 5: Economic Sciences, 10(59), 2. Mendoza, R. L. (2015). Health services marketing for routine child vaccinations in the Philippines. Services Marketing Quarterly, 36, 189–209. Mukherjee, A., & Lee, K. (Kyung). (2016). Determinants of brand equity in business to business services: An exploratory study in the it services context. In 2016 AMA Winter Educators’ Proceedings. Mukherjee, S., & Shivani, S. (2016). Marketing mix influence on service brand equity and its dimensions. Vision, 20(1), 9–23. Sage Publications, MDI. Noor, Z. Z. (2020). The model of experiential marketing, service quality, and customer loyalty. Talent Development and Excellence, 12(1s), 192–199. Oyewole, P. (2018). International marketing of services and developing countries. Services Marketing Quarterly, 39(2), 79–91.

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Sood, S., & Woodside, A. G. (2017). Vignettes in the two-step arrival of the internet of things and its reshaping of marketing management’s service-dominant logic. Journal of Marketing Management, 33(1–2), 98–110. Srisook, P., & Panjakajornsak, V. (2017). Southeast Asian low-cost carrier airline competitiveness: A solution for economic growth. BEH—Business and Economic Horizons, 13(4), 536–555. Westerbeek, H. M., & Shilbury, D. (1999). Increasing the focus on “place” in the marketing mix for facility dependent sport services. Sport Management Review, 2, 1–23. Yelkur, R. (2000). Customer satisfaction and the services marketing mix. Journal of Professional Services Marketing, 21(1). Zeithaml, V. A., Parasuraman, A., & Berry, L. L. (1985). Problems and strategies in services marketing. Journal of Marketing, 49(Spring 1995), 33–46. Zhang, N., Bian, D., & Chong, W. K. (2016). E-marketing services and e-marketing performance: The roles of innovation, knowledge complexity and environmental turbulence in influencing the relationship. Journal of Marketing Management, 32(1–2), 149–178.

Rahul Gupta Choudhury is a chemical engineer from NIT, Durgapur, India and a post graduate (MBA) from IIM, Lucknow, India. He worked in the corporate sector for 14 years, rising to the general manager level. During this period, he worked in multinationals and very large corporate establishments. In the corporate sector, he has primarily worked in the areas of sales and marketing, and supply chain management. He was also a Fulbright scholar from Carnegie Mellon University, Pittsburgh, USA. Then he shifted to academics, teaching in top private business schools in India. Simultaneously, he did his Ph.D. in 2016 from Alliance University, Bangalore, India. He is quite active in research and has published many papers in reputed national and international journals. He has participated in many national/international conferences so far and has written book chapters on topics like emotional branding etc. He has also been the recipient of Best Faculty Award. Prof. Rahul Gupta Choudhury is also an author of a book on Sales and Distribution published by IGI Global from USA.

Chapter 13

Service Recovery and Continuity in Emerging Markets Dhananjay Bapat

1 Introduction Complaints or service failures are inevitable for organizations. The possibility of errors and complaints is higher in service organizations as it is characterized by intangibility, heterogeneity, and involves the employee–customer interface. The emerging country like India is moving toward a greater role in the service-based economy, which is corroborated from the share of service in the country’s GDP. The service sector contributes to about 54% of India’s gross value added at the current price in the year 2018–19. There are issues unique to emerging countries as these markets are economically, socially, structurally different from that of developed western markets (Burgess and Steenkamp 2006). Emerging markets are becoming attractive for various stakeholders, including developed countries, multi-national companies, investors, customers. It is predicted that markers will grow to USD 30 trillion by the year 2025 (Sheth and Sinha 2015). Therefore, it is recommended for a different approach while resolving complaints and developing suitable recovery measures. Considering the importance and peculiarity of emerging markets, it warrants close examination. Take the example of the FIFA world cup, which was organized in Brazil in the year 2014. It is estimated that 1 million people from 202 countries and 3 million Brazilian fans attended the tournament. It was an opportunity for service companies to make an impression on passengers through the handling of service failures. This would have contributed to driving the business during the next event. A service failure in the airline industry when the flight is canceled or delayed (Barakat et al. 2015). Perceived service failure has an implication on customer’s perception of air travel (Pearson 2014). Parasuraman et al. (1988) suggested two types of dimensions when consumers evaluate service encounters: outcome dimensions and process dimensions. Outcome D. Bapat (B) Indian Institute of Management Raipur, Raipur, Chattisgarh, India e-mail: [email protected] © Springer Nature Singapore Pte Ltd. 2020 A. Adhikari (ed.), Services Marketing Issues in Emerging Economies, https://doi.org/10.1007/978-981-15-8787-0_13

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dimensions are about initial drivers during the initial service encounter, and process dimensions are considered to be the primary driver during service recovery. With the influence of social media, customers can share their negative experiences, which can be seen by a lot of prospects and customers, further damaging the reputation of the organization. Past studies confirm that effective service recovery measures can make customers highly satisfied (Bitner et al. 1990a, b) and develop better customer relationships over time (Hart et al. 1990). In industries where there is a lesser difference among organizations in products and services, effective service recovery can contribute to desirable positioning among customers. It is pertinent how organizations respond to the complaints and take steps to convert the adverse situation into a favorable situation, and learn from the complaints to ensure that they are not repeated. The research on customer complaints, recovery, and perceived justice has advanced. The majority of research is based on experiences from the USA and other developed countries. Research in emerging markets could contribute to showing cultural and economic differences (Barakat et al. 2015).

2 Service Recovery: Problems and Prospects The topic of complaints and service recovery has received considerable attention in the marketing literature (Gelbrich and Roschk 2011). Past studies have examined the responses of an organization to a complaint and impact of service recovery (Gilly and Gelb 1982). Gilly (1987) outlined the importance of better complaint handling, leading to repurchase intention and positive word of mouth. Organizational responses are the initial reactions by a company in response to complaints (Gelbrich and Roschk 2011). Estelami (2000) categorized organizational response into three types: compensation, employee behavior, and promptness. Compensation is about the tangible benefit in the form of monetary benefit or equivalent; Employee behavior relates to friendly and responsible behavior; and promptness is about the way complaint is handled. According to Tax et al. (1998a, b), compensation can also include intangible responses, and an apology can compensate for the social loss. Goodwin and Ross (1989) examined the justice theory to analyze post complaint behavior.

2.1 Customer Complaints These are issues with the services that customers receive. Marketers need to understand the following: How do customers respond to dissatisfaction in the event of a failure? How customers behave in case of failure? How customers lodge the complaint? Customer can choose the following action:

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1. Take some form of public action (including complaining to the firm or to a third party or consumer court or Ombudsman or social media). 2. Stopping or reducing the interface with suppliers. 3. Take no Action. The customer response is explained with the following figure (Fig. 1):

Reach out to Social Media a er or before informing the firm

Complain to firm

Unsa sfactory service

Customer taking ac on (public, private) or no ac on

Resort to legal measures

Defect

Become passive

Spread nega ve word of mouth (offline)

No visible ac on

Fig. 1 Consequences of unsatisfactory service (Adapted from Tax et al. 1998a, b)

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Customers, who do not complain, consider the process of lodging complaint as a waste of time and effort (Zeithaml et al. 2017). They may indulge in coping behavior, which covers self-blame, denial, and seeking social support. On the other hand, there are customers who believe in positive consequences and consider they deserve fair treatment and excellent service. Customer is likely to complain in a situation when it attaches importance to service. The probability of complaint is higher when service is expensive and risky. There are customers who decide not to complain, but they spread negative word of mouth. Customers expect a desirable response from the service provider. In the event of less than desirable response, customers spread negative word of mouth through person or through social media.

2.2 Types of Complainers They can be categorized into four categories based on how customers respond to service failures: Passives: This type of customers does not take action. They are unlikely to reach out to social media or spread negative word of mouth, both offline and online, or unlikely to complain to a third party. Voicers: They can inform about their experience to the organization but not likely to involve in negative word of mouth. They can interact both in a formal or informal way and can give an opportunity to service providers to improve their performance. Irates: They indulge in spreading negative word of mouth with their friends, relatives, or social group. They are not happy with the service provider and believe that reaching out to the service provider is not worth it. They are likely to switch to competitors rather than giving a chance to service providers to respond to their complaints. Activist: They have a greater tendency to complain with a service provider, inform others about negative experiences, complain to third parties, or vent their anger at social media.

2.3 Why Customers Complain Research has shown that only 5–10% of customers, who are unhappy with the services, tend to complain. Past studies have identified the major reasons of complaint: 1. Seek compensation: Consumer complains to compensate for the loss incurred in the form of refund, compensation, or to benefit from the service again. 2. Vent their anger: Some consumers are not happy and become angry with the service provider. This can happen when the complaint process is cumbersome, employee behavior is rude, and there is a loss of sense of fairness.

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3. To improve the service or for the benefit of organization and society: As customers are involved with the service provider, they would like to give an opportunity to service provider for improvements.

Examples of Customer Complaints Customer 1 I left my car on October 1, 2019 at the workshop for denting painting. The workshop took several days. The facilities at the workshop were not up to the mark. To further my surprise, when I took the car on October 8, 2019, several issues were noticed, such as voices were coming from the car. I immediately informed the concerned person from the workshop.. He told me that due to the festival, workshop is closed and told to visit on the next day. I paid a visit on 9th and informed the general manager (GM) about the issue. He gave me the impression that he did not pay attention. Really I felt very bad about the attitude of a service provider. Thereafter, they said that I have to spend Rs. 28,000 to fix the problem. I am not happy with the way I was treated by the workshop person. Source: https://www.consumercomplaints.in/honda-cars-india-ltd-hondaamaze-c2489401#comments accessed on 21/10/2019. Customer 2 I was shocked when I came to know about the deduction of Rs. 3500/- as consolidated charges on my salary account. There is inadequate explanation by the bank regarding the deduction. It showed a lapse in Customer service. Source: https://www.consumercomplaints.in/complaints/axis-bank-c10 9477.html Customer 3 When I ordered this product on 1st and 2nd, it was expected that about the delivery on October 14 and October 19. To my surprise, the shipping is delayed, and now the new date is showing as October 26. I have raised issues with the expectation of it being resolved by October 19 which is delayed to 26th. Please help me and ship my order by tomorrow. This is my hard-earned money, i am very helpless. Please ensure that these orders are delivered before Diwali. https://www.consumercomplaints.in/flipkart-bosch-washing-machineand-mi-tv-c2489214#comments accessed on 21/10/2019.

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2.4 Compliant Management system—Financial Ombudsman Services—Case of the Developed Country—UK In U.K, Financial Ombudsman Services is set up by the Parliament under the Financial Services and Markets Act 2000. It looks into the complaints between financial businesses and their customers. The objective is to resolve it fairly, reasonably, and as informally as possible. From April 2019, the complaints pertaining to smalland medium-sized enterprises come under the purview. Financial Ombudsman can resolve complaints when these businesses are not able to resolve a problem. The action from the Ombudsman can compel the business to apologize, to take action, or to pay compensation depending on the circumstances. According to Caroline Wayman, “We have accepted all the recommendations made by Richard Lloyd, following the review of the independent review of services of Financial Ombudsman.” Based on the acceptance of suggestions, Financial Ombudsman has set up a target to shape strategy in the year 2021 and deliver the strategy in the year 2025. The complaints are categorized into the following: 1. 2. 3. 4. 5.

Banking and credit except for packaged banking and credit Insurance Investment and pensions Packaged bank accounts Short-term lending.

2.5 Complaint Management System—Banking Ombudsman—Case of Emerging Country—India Banking Ombudsman, 2006 scheme is introduced by Reserve Bank of India (RBI) in the exercise of the power conferred by section 35 A of Banking Regulation Act, 1949, with the objective of resolution of complaints relating to services rendered by banks and to facilitate the satisfaction of such settlements. The major ground of complaints covered under Banking Ombudsman Scheme, 2006, which was amended in the year 2017 are as follows: (i)

Non-payment or inordinate delay in the payment of collection of cheques, bills, drafts, etc. (ii) Non-payment or delay in payment of inward remittance. (iii) Levying of charges without prior notice to customers. (iv) Issues in ATM/Debit card such as account debited but cash not dispensed. (v) Debited from card without the use of the card. (vi) Unsolicited calls for add-on cards and other offers. (vii) Delay or failure to effect online transactions. (viii) Unauthorized electronic payments. (ix) Non-disbursement or delay in pension disbursement.

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(x)

Non-adherence to provisions of code of Bank’s commitments to Customers issued by Banking Codes and Standards Board of India. (xi) Non-observance of Reserve Bank guidelines on engagement of recovery agents by banks. (xii) Delay in sanction, disbursement, or non-observance of the prescribed time schedule for disposal of disbursement of loan applications. The complainant can lodge a complaint after complaint is lodged to the concerned bank/institution, and when the complainant is not satisfied with the reply given by the bank.

2.6 Comparison of Complaint Management System Between a Developed Country and Emerging Country The comparison in the complaint management system is shown in Table 1. Table 1 Comparison of complaint management system between a developed and an emerging country Developed Country—UK

Emerging Country—India

Coverage

There is single Ombudsman for finance covering banking, insurance, and investments

There is a separate Ombudsman for banking services

Review of Banking Ombudsman

A review of Ombudsman is undertaken in the year 2018. The Ombudsman has set the target for implementation. The name of the committee is Richard Lloyd. Financial Ombudsman has set timelines for its implementation

A review of Banking Ombudsman has not been undertaken in recent years. The scheme is amended till July 2017

Scheme

The present scheme is set up in the year 2000 and given statutory powers in 2001 by the Financial Services and Market Act, 2001

The Ombudsman scheme was first introduced in the year 1995, and presently, Banking Ombudsman Scheme, 2006 amended till July 2017 is in effect

Mental agony/distress

Complaints with regard to distress, inconvenience, pain, suffering, and damage to reputation are categorized into moderate, substantial, severe, and extreme

The Ombudsman has not categorized these types, and there is a limit of award of Rs. 1 lakh for complaints involving mental agony and harassment

Source Author analysis

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2.7 Customer Feedback Feedback is critical for service organizations as some of the services have a long duration and are from a long-term perspective. Even if a customer avails for a single time, the opinion of customer matters. Organizations need to develop a mechanism to capture customer feedback and ensure that negative word of mouth is not spread. Service marketers need to know which customers are delighted, satisfied, and dissatisfied. Companies can adopt the following feedback mechanism: (i)

(ii)

(iii)

(iv)

(v)

(vi)

(vii)

Online feedback: Nowadays, online feedback is common in various situations such as cab service, e-tailing, web-link, and for various other services. The advantage is that it is simple and quick. The ability to have quick feedback can enable organizations to respond to customer feedback. Direct call to customers: Some of the organizations such as restaurants, car repair services, and hotels call up customers to get information about customer experience. In case a customer has any issues, he can inform, and there is an opportunity for the organization to respond. Feedback forms: Service providers can request customers to fill feedback during or after the consumption of services. For example, Some airlines obtain feedback through feedback forms. Transactional Surveys: The survey is completed at the end of a particular transaction to assess the level of customer service. Major aspects of the transaction are covered during the survey. Mystery Shopping: Service providers can rely on mystery shopping to assess both the skills of customer-facing employees and servicescape as perceived by a customer. Call records: Organizations record call when a customer contacts the call center. These call records provide a scope to know the nature of interaction between a customer and the call center employee. Unsolicited feedback: Sometimes, service providers do not specifically request for feedback, but customer offers their suggestion and feedback on their own. Such feedback can be complementary or involve customer issues.

3 Service Recovery Service recovery is defined as a process that deals with service failures, affectively resolves customer problems, classifies their root cause, and yields data that can be integrated with other measures of performance to assess and improve the service system” (Tax and Brown 2000). Thus, service recovery deals with mechanisms to deal with service failure, understand the causes of failure, and steps to mitigate its effect. For most service organizations, complaints become a routine affair, and service recovery is an essential strategy, unlike manufacturing organizations that are known

13 Service Recovery and Continuity in Emerging Markets Interac onal Jus ce Complaint to firm

Procedural Jus ce

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Sa sfac on with complaint

Prior experience

Interac onal Jus ce

Distribu ve Jus ce

Fig. 2 Framework of Justice (Adapted from Tax et al. 1998a, b)

for producing standardized products using mass production. Furthermore, specific quality management initiatives such as total quality management, six sigma, and zero defects play an important role in offering scope for complaints. In service industries, there can be factors that are both within and outside the control of companies. For instance, airlines face issues of bad weather. While they can plan for inclement weather, they cannot altogether avoid it. There is a notion that while many problems are unavoidable, dissatisfied customers are not (Hart et al. 1990). The framework of justice is displayed below (Fig. 2).

3.1 Justice and Service Recovery Application of justice for customer service has originated from organizational justice. Justice theories have been considered as a theoretical framework for service recovery procedures. The provision of service has been an important outcome for trust and consumer evaluation of organizational response to consumer complaints. (McCollKeneedy and Sparks 2003; Varela-Neira et al. 2010). Theories of justice offer insights into the aspects of service recovery and how it can contribute toward organizational performance. Investigations in the area of service recovery have benefitted from justice literature which has been classified into three forms of justice: Distributive justice (decision outcomes), procedural justice (decision-making process), and interactional justice (interpersonal behavior in procedures and outcomes). Distributive Justice Distributive justice is concerned with the allocation of cost and benefits, which relates to problems arising from service breakdowns. During an event of service failure, there is an expectation from customers to be compensated appropriately (Berry and Parasuraman, 1991). The compensation can cover not only the failure but also the inconvenience caused by customer (Zemke, 1995). In legal parlance, consumer court compensates customers for mental agony. Service organizations respond to

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complaints through a combination of apologies, replacements, and refunds. For example, a customer having a problem with a meal at a restaurant is compensated by alternate meal options and cash compensation. It is also observed that the regulator may give the mandate to compensate the customer for the lapse in service. For example, banks are required to resolve failed debit card transactions within five working days. In case banks are unable to resolve the complaints within a stipulated time, they are required to pay Rs. 100 for every delayed day. Airlines may offer free accommodation and meals or any other compensation in the event of flight getting canceled. Past studies have found that effectiveness in distributive justice affects customer satisfaction, loyalty, and word of mouth behavior (Tax and Brown 2000). Procedural Justice Procedural justice is related to company policies and practices that govern the recovery process. The aspect of procedural justice is linked to both evaluation of service recovery process and employee and customer satisfaction (Bitner et al. 1990a, b; Tax et al. 1998a, b). When service failure happens, customer expects service resolution as fair, transparent, informed, efficient, and equitable. Interactional Justice Interactional justice is related to the behavior of a firm’s employee. Past research has emphasized the role of fair employee behavior and customer evaluations of service recovery (Bitner et al. 1990a, b). The justice elements and sub-elements are described below (Table 2). Regulator and Organizational Responses to customer complaints We discuss specific examples to depict the response by the regulator, Reserve Bank of India, and various court decisions in the area of financial services: Rude behavior A bank will be responsible for deficiency in service because of the rude behavior of its officials. Bank will be required to pay compensation for the mental agony and discomfort caused. Locker In case of loss of articles from the bank locker, the bank is required to compensate for the loss of articles. Bank will be responsible and will be considered as the agreement as that between a landlord and a tenant. Non-return of documents The bank is required to return the security documents after repayment of the whole loan. Banks are liable for deficiency in service. Organizational Response to Customer Complaints Organizations develop a strategy to deal with service deficiency. The strategy can be both short term and long term. The following are the organizational response to customer complaints.

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Table 2 Justice element and sub-element Element

Sub-element

Definition

Source

Distributive Justice

Equity

Provision of outcome proportion to exchange

Oliver and Swan (1989)

Equality

Equal outcomes regardless Greenberg (1990) of exchange

Need

Outcome based on Deutsch (1985) requirements regardless of contributions

Process control

Freedom to contribute views on a decision process

Goodwin and Ross (1992)

Decision control

The extent to which a person is free to accept or reject a decision

Heide and John (1992)

Accessibility

Ease of engaging a process Bitner et al. (1990a, b)

Timing/speed

The perceived amount of Taylor (1994) time taken to complete the process

Flexibility

Accessibility to procedures

Narver and Slater (1990)

Causal account

Provision of reason for failure

Bitner et al. (1990a, b)

Honesty

Perceived veracity

Goodwin and Ross (1989)

Politeness

Well mannered, courteous Goodwin and Ross (1989) behavior

Effort

Amount of positive energy Mohr and Bitner (1995) put to resolve a problem

Empathy

Provision of caring, individual attention

Procedural Justice

Interactional Justice

Parasuraman et al. (1988)

Adapted from Tax et al. (1998a, b)

Encourage and track complaints: As failures happen in a service setup, an important strategy is to track and segregate complaints. The various feedback mechanisms can help to facilitate to track complaints. Complaints can also be segregated as severe and trivial. Software applications can help to trace complaints, and complaints can be escalated to a higher level if it is not resolved (Fisher 1999). Learn from past experiences: Service issues and complaints are opportunities to deal with flawed processes and strengthen ties with customers. By looking into past recovery experiences, service managers can learn about systematic problems in the service delivery system that needs attention. Organizations can conduct root cause analysis to find the sources of the problems. Ritz Carlton Hotel has developed a method to suggest action to deal with service issues (Zeithaml et al. 2017).

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Learn from lost customers and present customers: Another critical lesson is from lost customers. Formal marketing research can help in finding the reasons that can help prevent failures. In-depth interviews and probing with both present and lost customers can help to find and sort out the issues. Do it right the first time: The first rule of service quality is to do the right the first time. Dick Chase argued for the adoption of the notion of poka-yoke to improve service reliability. Poka-Yokes are automatic warnings or controls. The objective is to ensure that mistakes do not happen. They ensure that the right procedures are followed. Poka-Yokes can also contribute to employee behavior with tools such as a checklist and reminder signs. How Ola Cabs turned a frustrated customer into its brand advocate (Source: https://www.digitalvidya.com/blog/how-ola-cabs-turned-a-frustr ated-customer-into-its-brand-advocate/). A customer booked a cab for his wife and daughter, who were to attend a birthday party. Customer booked by 11 am for 5:15 p.m. departure with Ola Cabs. At 4:50 p.m., customer was informed by his wife about the cancelation of the cab due to unavailability. At this point, when he was about to enter a meeting, customer got a call from his family and found himself in a situation of searching for more options. On attempting to find different options from OLA, customer received a message showing details of the driver. However, he found that driver was way from home by 40 kms and found that his 6-year-old daughter would be missing the much-awaited birthday party. On the next day, a customer dropped a tweet, sharing his experience on services offered by Ola Cabs, and Ola cabs responded to the tweet by reply.

Customer received a call from the Senior Customer Relationship Manager. The manager listened to the bad experience and apologized for incorrect allotment. After explaining the situation to the company representative, the customer was a bit relieved. After the long hectic day and complete narration of his bad experience to the company representative, Pradeep was pleasantly surprised when he came

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to know that his daughter got the gift from Ola Cabs. It was a cake box and carried the following message:

This message was very touching and the customer dropped the idea of leaving a bad and detailed review of the Company. This indicates how a frustrated customer was turned into a brand advocate for Ola Cabs.

4 Service Guarantee Due to the characteristics of services, the customer is not sure of the quality of services. In order to generate a feeling of trust, commitment, and confidence among customers, service providers can offer a guarantee with an intention that it satisfies customers. A service guarantee is a commitment that can cover all or part of service. It may also include compensation in case the commitment is not honored (Kashyap 2001). The guarantee is also a quality tool and provides signals regarding the level of customer service. It also helps in building brand positioning. Domino Pizza is making an effort to signify that Pizza is delivered within 30 min. This brand association is closely linked with Domino Pizza and difficult for a competitor to copy. Bain and Company, a management consultancy firm, has offered an unconditional guarantee for its services. FedEx guarantees package delivery by a certain time. Following factors are to be kept in mind while designing service guarantee: Industry factors: An industry, where there are few tangible components, need to focus on service quality and service guarantee. In such a situation, offering a service guarantee can help in setting the first-mover advantage. Customer expectations: Service organizations need to ascertain the expectations by customers. The awareness of customer expectations can result in the customerinduced standards, providing an avenue of setting guarantee.

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Internal factors: Service organizations need to factor various organizational factors such as process fit, management of contact, third party support, and employee involvement. Effective service guarantee can fulfill the characteristics like unconditional, meaningful, easy to understand, and easy to invoke. Implementation and Communication A service organization needs to pre-test within a group of customers from the target market. Based on the response from the pre-test, communication is made with customers. This communication can be in a phased manner to allow application of a service guarantee.

5 Service Continuity The nature of a customer’s overall relationship may decide whether the customer stays with the service provider. Research suggests that customers who have “true relationships” with service providers tend to ignore service deficiencies. To facilitate service continuity, the service provider needs to understand the reasons for service failure or deficiency. This may be due to pricing, inconvenience, core service failure, and service encounter failure. Service continuity from an Information Technology (IT) service is important and helps in reducing and limiting tangible and intangible business losses during unforeseen events, contingencies, or disasters. To mitigate such a situation, service organizations need to make risk exposure to service.

6 Discussions and Recommendations Based on the above discussions about service recovery and continuity related to emerging markets, we suggest that service companies need to be concerned about addressing customer complaints. As stated above, our recommendations are focused mainly on services that are prone to complaints. Customers can choose the following action: take some form of public action, take some form of private action (including abandoning the supplier), or take no action. Complainers can be categorized into passives, irates, activist, and voicers. Each of these complaint categories requires a suitable approach. The objective here would be to familiarize with various approaches to deal with a different types of customers. Research has shown that only 5–10% of customers, who are unhappy with the services, tend to complain. Customers expect companies to respond to their complaints and look for compensations, vent anger, and help to improve the service. We compared the Ombudsman scheme in financial services between developed countries and emerging countries. While the Ombudsman scheme in UK covers all types of financial services, including insurance in a single umbrella, the Banking Ombudsman scheme in India is separate for banking

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services. There seems to be a regular review of the financial ombudsman scheme by an independent committee. Based on the committee, the Financial Ombudsman has set timelines for implementation. In India, the Damodaran Committee in the year 2010 looked into the customer service aspects. Banking Ombudsman scheme was revised in the year 2006 and is updated till the year 2017. Technology is playing an important role in financial services. With technological development, there are new types of players, such as telecom, fintech, and aggregators, which are playing a critical role. The entry of new players and continued technological development is resulting in growing complexities. The complexities require the Ombudsman scheme to improve their capabilities, such as real-time processes, the role of social media in knowing the type of complaints. India is peculiar for its diversity, and as a result, the role of regional languages require attention. Ombudsman scheme can utilize the benefits of artificial intelligence and machine learning. There is a need to reduce the turnaround time of resolving the complaints and regulators can also set the objective of reducing the cost of managing the scheme. Questions 1. Discuss the aspect of service recovery? 2. Discuss the types of service failures in case of financial services, and what are your recommendations to deal with it? 3. Discuss the importance of service guarantee in the process of service recovery? 4. Visit the online shopping website? How difficult or easy to complain? Based on customer interviews and online sources, what is an organizational response to deal with complaints? What are your suggestions? 5. Design a service guarantee with your preferred service organization?

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Dhananjay Bapat is a faculty with Indian Institute of Management (IIM), Raipur, India and has worked earlier with National Institute of Bank Management (NIBM), Pune. He has both academic experience and industry experience. He has taught courses on Marketing Management, Marketing of Financial Services, Services Marketing, Customer relationship management, and Brand Management, and has published articles in reputed journals. He has published book “Marketing for Financial Services” and has presented research papers in conferences in India and USA. He is the recipient of best paper award for a banking conference in India. He has published articles in Financial Express and Mint. His Study on "Cost of Cash" received a lot of attention from policymakers, bankers, and academicians.