Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin

The Nature of ServicesThe Nature of Services

This presentation is a modified version of the original presentation

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Learning Objectives

Classify a service into one of four categories using the service process matrix.

Describe a service using the four dimensions of the service package.

Discuss the managerial implications of the distinctive characteristics of a service operation.

Discuss the insights obtained from a strategic classification of services.

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Service/Product Bundle

Element Core Goods

Example

Core Service

Example

Business Custom clothier Business hotel

Core Business suits Room for the night

Peripheral

Goods

Garment bag Bath robe

Peripheral

Service

Deferred payment plans

In house restaurant

Variant Coffee lounge Airport shuttle

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Roadmap

The Service Process Matrix Service Package Distinctive Characteristics of Service

Operations Classification of services for strategic insight

The Service Process Matrix

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Service Process Matrix

Services are classified across two dimensions that significantly affect the service delivery process.

Degree of Labor Intensity Ratio of labor cost to capital cost.

(Labor Intensive (High) and Capital Intensive (Low))

Degree of Customer Interaction and Customization

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The Service Process Matrix

Degree of labor Intensity

Degree of Interaction and Customization

Low High Low

Service factory:

* Airlines * Hotels

Service shop:

* Hospitals * Auto repair

High

Mass service:

* Retailing * Schools

Professional service:

* Doctors * Architects

Managers of services in any category share similar challenges. There are some differences as well.

The Service Process Matrix

What are some of the issues of concern for each category identified in the Service Process Matrix?

(Please take a moment and think about this)

The Service Package

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The Service Package

Supporting Facility

Facilitating Goods

Information

Explicit Services

Implicit Services

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The Service Package

Supporting Facility: The physical resources that must be in place before a service can be sold. Examples are golf course, ski lift, hospital, airplane.

Facilitating Goods: The material consumed by the buyer or items provided by the consumer. Examples are food items, legal documents, golf clubs, medical history.

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The Service Package

Information: Operations data or information that is provided by the customer to enable efficient and customized service. Examples are patient medical records, seats available on a flight, customer preferences, location of customer to dispatch a taxi.

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The Service Package (cont.)

Explicit Services: Benefits readily observable by the senses. The essential or intrinsic features. Examples are quality of meal, attitude of the waiter, on-time departure.

Implicit Services: Psychological benefits or extrinsic features which the consumer may sense only vaguely. Examples are privacy of loan office, security of a well lighted parking lot.

Distinctive Characteristics of Services

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Distinctive Characteristics of Services

Inputs Customers themselves

Resources Facilitating goods

Employees

Capital at the command of the service manager

Banking – focus is on processing information instead of people• IT such as electronic funds transfer can be substituted for

physically depositing a payroll check• Presence of the customer is unnecessary.

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Distinctive Characteristics of Services

Customer Participation in the Service Attention to facility – Web Portal feel

Process Simultaneity Created and consumed simultaneously.

Cannot be stored

Perishability Unused capacity is lost

Intangibility Services are ideas and concepts. Not

patentable. Perceptions

Heterogeneity Variation of service from customer to customer

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Distinctive Characteristics of Services

Customer Participation in the Service Process: attention to facility design but opportunities for co-production

Simultaneity: opportunities for personal selling, interaction creates customer perceptions of quality

Perishability: cannot inventory, opportunity loss of idle capacity, need to match supply with demand

Intangibility: creative advertising, no patent protection, importance of reputation

Heterogeneity: customer participation in delivery process results in variability

Strategic Service Classification

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Strategic Service Classification (Nature of the Service Act)Strategic Service Classification (Nature of the Service Act)

Direct Recipient of the Service Nature of the Service Act

People

Things

Tangible actions

People’s bodies:

Health care Passenger transportation Beauty salons Exercise clinics Restaurants

Physical possessions:

Freight transportation Repair and maintenance Veterinary care Janitorial services Laundry and dry cleaning

Intangible actions

People’s minds:

Education Broadcasting Information services Theaters Museums

Intangible assets:

Banking Legal services Accounting Securities Insurance

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Strategic Service Classification (Relationship with Customers)Strategic Service Classification (Relationship with Customers)

Type of Relationship between Service Organization and Its Customers

Nature of Service Delivery

“Membership” relationship

No formal relationship

Continuous delivery of service

Insurance Telephone subscription Electric Utility Banking

Radio station Police protection Lighthouse Public Highway

Discrete transactions

Long-distance phone calls Theater series tickets Transit pass Sam’s Wholesale Club Airline frequent flyer

Restaurant Pay phone Toll highway Movie theater Public transportation

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Strategic Service Classification (Customization and Judgment)Strategic Service Classification (Customization and Judgment)

Extent to Which Service Characteristics Are Customized Extent to Which Personnel Exercise Judgment in Meeting Customer Needs

High

Low

High

Surgery Taxi services Gourmet restaurant

Preventive health programs Education (large classes) Family restaurant

Low

Telephone service Hotel services Retail banking Cafeteria

Public transportation Spectator sports Movie theater Institutional food service

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Strategic Service Classification (Nature of Demand and Supply)Strategic Service Classification (Nature of Demand and Supply)

Extent of Demand Fluctuation over Time

Extent to which Supply Is Constrained

Wide

Narrow

Peak demand can usually be met without a major delay

Electricity Telephone Police emergency Hospital maternity unit

Insurance Legal services Banking Laundry and dry cleaning

Peak demand regularly exceeds capacity

Tax preparation Passenger transportation Hotels and motels

Fast food restaurant Movie theater Gas station

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Strategic Service Classification (Method of Service Delivery)Strategic Service Classification (Method of Service Delivery)

Availability of Service Outlets

Nature of Interaction between Customer and Service Organization Single site Multiple site

Customer travels to service organization

Theater Barbershop

Bus service Fast-food chain

Service provider travels to customer

Taxi Pest control service Taxi

Mail delivery AAA emergency repairs

Transaction is at arm’s length

Credit card company Local TV station

Broadcast network Telephone company

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Summary

The Service Process Matrix Service Package Distinctive Characteristics of

Service Operations Classification of services for

strategic insight

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Village Volvo’s Service Package

Supporting Facility

Facilitating Goods

Information

Explicit Services

Implicit Services

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Village Volvo’s Distinctive Service Characteristics

Intangibility

Perishability

Heterogeneity

Simultaneity

Customer Participation in the Service Process

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Village Volvo’s Service Classification

Nature of the service act

Relationship with customers

Customization and judgement

Nature of demand and supply

Method of service delivery

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Managing Village Volvo

How could Village Volvo manage its back office (repair operations) like a factory?

How can Village Volvo differentiate itself from Volvo dealers?