The Nature of Services

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. Discuss the role of a service manager from an

open-systems view of service.

An Integrated Approach to Service ManagementAn Integrated Approach to Service Management

The Eight ComponentsThe Eight Components • Product Elements• Product Elements • Place, Cyberspace, and Time • Place, Cyberspace, and Time • Promotion and Education • Promotion and Education • Price and Other User Outlays • Price and Other User Outlays + Process + Process + Productivity and Quality + Productivity and Quality + People + People + Physical Evidence + Physical Evidence

Require the Integration of Marketing, Require the Integration of Marketing, Operations, and Human ResourcesOperations, and Human Resources

Service/Product BundleService/Product Bundle

ElementElement Core Core GoodsGoods

ExampleExample

Core Core ServiceService

ExampleExample

BusinessBusiness Custom clothierCustom clothier Business hotelBusiness hotel

CoreCore Business suitsBusiness suits Room for the Room for the nightnight

PeripheralPeripheral

GoodsGoods

Garment bagGarment bag Bath robeBath robe

PeripheralPeripheral

ServiceService

Deferred Deferred payment planspayment plans

In house In house restaurantrestaurant

VariantVariant Coffee loungeCoffee lounge Airport shuttleAirport shuttle

The Service Process Matrix

Degree Degree of Interaction and Customization of labor Intensity Low High

Service factory: Service shop:

* Airlines * Hospitals

Low * Trucking * Auto repair

* Hotels * Other repair services

* Resorts and recreation

Mass service: Professional service:

* Retailing * Doctors

High * Wholesaling * Lawyers

* Schools * Accountants

* Retail aspects of * Architects

commercial banking

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.

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.

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

Direct Recipient of the ServiceNature of

the Service Act People Things People’s bodies: Physical possessions: Health care Freight transportation Passenger transportation Repair and maintenance

Tangible actions Beauty salons Veterinary care Exercise clinics Janitorial services Restaurants Laundry and dry cleaning

People’s minds: Intangible assets: Education Banking

Intangible actions Broadcasting Legal services Information services Accounting Theaters Securities Museums Insurance

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

Type of Relationship between Service Organization and Its CustomersNature of Service Delivery “Membership” relationship No formal relationship

Insurance Radio station Telephone subscription Police protection

Continuous delivery Electric Utility Lighthouse

of service Banking Public Highway

Long-distance phone calls Restaurant Theater series tickets Pay phone

Discrete transactions Transit pass Toll highway Sam’s Wholesale Club Movie theater Airline frequent flyer Public transportation

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

Surgery Preventive health programs

High Taxi services Education (large classes) Gourmet restaurant Family restaurant

Telephone service Public transportation

Hotel services Spectator sports

Low Retail banking Movie theater

Cafeteria Institutional food service

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

Electricity Insurance

Peak demand can Telephone Legal services

usually be met Police emergency Banking

without a major delay Hospital maternity unit Laundry and dry cleaning

Tax preparation Fast food restaurant

Peak demand regularly Passenger transportation Movie theater

exceeds capacity Hotels and motels Gas station

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 Theater Bus service

service organization Barbershop Fast-food chain

Service provider Taxi Mail delivery

travels to customer Pest control service AAA emergency repairs

Taxi

Transaction is at Credit card company Broadcast network

arm’s length Local TV station Telephone company

Open Systems View of Services Service Process Consumer Evaluation

Consumer arrivals Consumer participant departures Criteria

(input) Consumer-Provider ( output) Measurement

interface

Control Monitor

Customer demand Service operations manager Service personnel

Production function:

Perceived needs Alter Monitor and control process Schedule Empowerment

Location demand Marketing function: supply Training

Interact with consumers Attitudes

Control demand

Modify as necessary

Define standard

Service package

Supporting facility

Communicate Facilitating goods Basis of

by advertising Explicit services selection

Implicit services

Village Volvo’s Service Package

Supporting Facility

Facilitating Goods

Information

Explicit Services

Implicit Services

Village Volvo’s Distinctive Service Characteristics

IntangibilityIntangibility

Perishability

Heterogeneity

Simultaneity

Customer Participation in the Service Process

Village Volvo’s Service Village Volvo’s Service ClassificationClassification

Nature of the service actNature of the service act

Relationship with customersRelationship with customers

Customization and judgementCustomization and judgement

Nature of demand and supplyNature of demand and supply

Method of service deliveryMethod of service delivery

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?

Xpresso Lube FacilityXpresso Lube Facility

Xpresso Lube’s Service Package

Supporting Facility

Facilitating Goods

Information

Explicit Services

Implicit Services

Xpresso Lube’s Distinctive Service Characteristics

IntangibilityIntangibility

Perishability

Heterogeneity

Simultaneity

Customer Participation in the Service Process

Xpresso Lube’s Service Xpresso Lube’s Service ClassificationClassification

Nature of the service actNature of the service act

Relationship with customersRelationship with customers

Customization and judgementCustomization and judgement

Nature of demand and supplyNature of demand and supply

Method of service deliveryMethod of service delivery

Beyond Xpresso LubeBeyond Xpresso Lube

What elements of Xpresso Lube’s What elements of Xpresso Lube’s location contribute to its success?location contribute to its success?

Given the example of Xpresso Lube, Given the example of Xpresso Lube, what other services could be combined what other services could be combined to “add value” for the customer?to “add value” for the customer?

Topics for Discussion What are the characteristics of services that will be

most appropriate for Internet delivery? When does collecting information through service

membership become an invasion of privacy? What are some management problems associated with

allowing service employees to exercise judgement in meeting customer needs?

What factors are important for a manager to consider when attempting to enhance a service firm’s image?

What contributions to the management of professional service firms can a business school graduate provide?

Interactive Class ExerciseInteractive Class Exercise

The class breaks into five groups and each The class breaks into five groups and each group is assigned one of the service group is assigned one of the service classifications (e.g., nature of act, relationship classifications (e.g., nature of act, relationship with customer, customization, nature of with customer, customization, nature of demand, or method of delivery) to come up demand, or method of delivery) to come up with an example for each of the four with an example for each of the four quadrants in the matrix. quadrants in the matrix.