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.

Unified Services Theory

“With service processes, the customer provides significant inputs to the production process. With manufacturing processes, groups of customers may contribute ideas to the design of the product, but individual customers’ only participation is to select and consume the output. All managerial themes unique to services are founded in this distinction” Sampson, IJSIM 11:4 (2001).

Unified Service Theory Themes

Service processes are distinguished from non-service processes only by the presence of customer inputs and implications thereof.

For those familiar with business management in general, understanding those additional issues unique to managing services requires only understanding the implications of customer inputs.

Customer inputs are the root cause of the unique issues and challenges of services management.

Sampson and Froehle, POMJ 15:2 (2006)

Unique Characteristics of Services Intangibility: creative advertising, no patent

protection, importance of reputation Perishability: cannot inventory, opportunity loss of

idle capacity, need to match supply with demand Heterogeneity: customer participation in delivery

process results in variability Simultaneity: opportunities for personal selling,

interaction creates customer perceptions of quality Customer Participation in the Service Process:

attention to facility design but opportunities for co-production

A Basic View: Services as a Service/Product Bundle

Element Core Goods

Example

Core Service

Example

Business Custom clothier Business hotel

Core Good/Service 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

A More Elaborate View: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.

Understanding Service Processes:The Service Process Matrix

Degree of Interaction and Customization 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

Degree of labor Intensity

Service Process Efficiency and Effectiveness

Customer as Coproducer Front and Back Office Perspectives Service Profit Chain Focus on Internal and

External Customers Quality (perceptions vs expectations) Focus on Both Efficiency and Effectiveness Use IT as Productivity Enabler for Both

Internal and External Customers

Classifying Services Through Structural Positioning Classifications:

The Nature of the Service Act Relationship with Customers Customization and Judgment Nature of Demand and Supply Method of Service Delivery

Why do this? Who can I learn from? How can I differentiate myself?

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

Direct Recipient of the Service

People Things

Nature of the Service Act

Tangible Actions

Services Directed at People’s Bodies:

Healthcare

Passenger transportation

Beauty salons

Exercise clinics

Restaurants

Services Directed at Goods and other Physical Possessions:

Freight transportation

Repair and maintenance

Laundry and dry cleaning

Veterinary care

Intangible Actions

Services Directed at People’s Minds:

Education

Broadcasting

Information Services

Theaters

Museums

Services Directed at Intangible Assets:

Banking

Legal services

Accounting

Securities

Insurance

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

Type of Relationship between Service Organization and its Customers

“Membership” Relationship No Formal Relationship

Nature of the Service Delivery

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

Wholesale buying club

Airline frequent flyer

Toll highway

Pay phone

Movie theater

Public transportation

Restaurant

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

Extent to which Service Characteristics are Customized

High Low

Extent to which Customer Contact Personnel Exercise Judgment in Meeting Individual Customer Needs

High

Surgery

Taxi service

Gourmet restaurant

Education (large classes)

Preventive health programs

Family restaurants

Low

Telephone service

Hotel services

Retail banking

Cafeteria

Public transportation

Movie theater

Spectator sports

Institutional food service

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

Extent of Demand Fluctuations over Time

Wide Narrow

Extent to which Supply is Constrained

Peak demand can usually be met without delay

Electricity

Telephone

Hospital maternity unit

Police emergencies

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

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

Availability of Service Outlets

Single Site Multiple Site

Nature of Interaction Between Customer and Service Organization

Customer Travels to Service Firm

Theater

Barbershop

Bus service

Fast food chain

Service Provider Travels to Customer

Pest control service

Taxi

Mail delivery

AAA emergency repairs

Transaction is at Arm’s Length

Credit card company

Local TV station

National TV network

Telephone company

Service Operations: An Open Systems View

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

Xpresso Lube’s Service Package Supporting Facility

Facilitating Goods

Information

Explicit Services

Implicit Services

Xpresso Lube’s Distinctive Service Characteristics Intangibility

Perishability

Heterogeneity

Simultaneity

Customer Participation in the Service Process

Xpresso Lube’s Service Classifiction Nature of the service act

Relationship with customers

Customization and judgement

Nature of demand and supply

Method of service delivery

Xpresso Lube Questions

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

Given the example of Xpresso Lube, what other services could be combined 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?

Interactive Class Exercise

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