Chapter 1

An Introduction to Services

WHAT IS A SERVICE?

The Distinction is Unclear:

The Scale of Market Entities&

The Molecular Model

WHAT IS A SERVICE?

In General:

Goods Objects, Devices, Things

Services Deeds, Efforts, Performances

THE BENEFIT CONCEPT

Encapsulation of benefits in the consumers mind Tide

Cleanliness Whiteness Motherhood

THE BENEFIT CONCEPT

Services deliver the bundle of benefits through the experience that is created for the consumer

The servuction model provides a framework for understanding the consumer’s experience

Invisible Visible

InanimateEnvironment

ContactPersonnel

OrServiceProvider

Invisibleorganizationand systems

Customer A

Customer B

The Servuction Model

Bundle of servicebenefits receivedby Customer A

THE INCREASING DEMAND FOR SERVICE KNOWLEDGE

Changes in management perspective The Industrial Model vs. The Market-

focused Model Growth in service sector employment Service sector contributions to the

world economy Deregulation

THE DEMAND FOR KNOWLDEGE:SERVICE SECTOR EMPLOYMENT

Service Sector Employment: 78% in United

States 73% in Great

Britain 62% in Japan 57% in Germany 90% of All Jobs by

2020

New Job Creation: 80% of All New Jobs

(1980-1990) 90% of All New Jobs

(1990-2000) 88% of All Jobs by

2005

*42% of Work Force is Providing Some Form of Personal Service

THE DEMAND FOR KNOWLEDGE:CONTRIBUTIONS TO THE ECONOMY

Economic impact: The service sector accounts for over

70% of the United States’ gross domestic product (GDP)

The majority of industries in the U.S. economy do not produce, they perform

THE DEMAND FOR KNOWLEDGE:THE IMPACT OF DEREGULATION

Between 1980-1992 U.S. airlines declined from 36 to 12 the number of trucking companies that failed

during the 1980s was more than the previous 45 years combined

commercial banks declined by 14%

Effect of Deregulations: No demand for services knowledge

when demand exceeded supply and competitive pressures were few

THE DEMAND FOR KNOWLEDGE:THE IMPACT OF DEREGULATION

Effect of Deregulations (continued):Knowledge is needed in nonprice issues:

customer service customer retention image enhancement transforming public contact personnel

into marketing-oriented personnel

THE INDUSTRIAL MODEL

Sales Revenues are a function of: location Strategies sales Promotions advertising

THE INDUSTRIAL MODEL (continued)

Labor and operating costs should be kept as low as possible better to rely on machines than

humans narrowly defined jobs

Leave little room for discretion believes most employees are

indifferent, unskilled, and incapable of completing complex tasks.

performance expectations are low wages are kept low few opportunities for advancement

THE INDUSTRIAL MODEL(continued)

Places a higher value on upper and middle managers

Replaces full-time personnel with part-time personnel to reduce costs

CONSEQUENCES OF THE INDUSTRIAL MODEL

(employee)

Guarantees a cycle-of-failure Encourages front-line personnel to be

indifferent to problems no opportunity for advancement (dead-

end jobs) poor pay

some companies let employees go before mandatory raises

CONSEQUENCES OF THE INDUSTRIAL MODEL

(employee) poor pay has created a new class of

migrant worker 16 million people now travel from one

short-term job to another superficial training

focuses only on product knowledge little, if any, company benefits

Prohibits employees from taking discretionary action

High employee turnover rate

CONSEQUENCES OF THE INDUSTRIAL MODEL

(customers) Customer dissatisfaction

2/3 of customer’s defect, not due to the product, but due to the unhelpfulness of the provider

flat and declining sales revenues Overall the industrial approach is bad

for: employees customers shareholders country

THE MARKET-FOCUSEDMANAGEMENT MODEL

Purpose of the firm is to serve the customer

Service delivery is the focus of the system and the overall differential advantage in terms of competitive advantage

The services triangle provides a framework for the services model

THE SERVICES TRIANGLE

Theservice

strategy

Thecustomer

Thesystems

The people

• The organizationexists to serve the needs of the people who serve the customer

• The companyexists to servethe customer

THE SERVICES TRIANGLE

1. Communicate the service strategy to the customer

2. Customer/employee interaction: greatest opportunity for gains and

losses moments-of-truth critical incidents

3. Customer/procedures & physical hardware A.T.M. machines cramped airline seats

4. Organizational systems may prevent

employees from giving good service5. Physical and administrative systems should flow logically from the

service strategy

6. Good service starts at the top*MGT. should “Walk What They Talk” and provide:

-sense of focus-clarity-priorities

THE SERVICES TRIANGLE

CHARACTERISTICS OF THE MARKET-FOCUSED MODEL

Believes employees want to do good work invests in people as much as machines technology is used to assist people (not

to monitor there every activity) data is made available to the front-line

CHARACTERISTICS OF THE MARKET-FOCUSED MODEL

(continued)

Recognizes that employee turnover and customer satisfaction are closely related tie pay to performance focus on selection and training of

personnel Ryder Truck

no training (41% turnover) received training (19% turnover)

better trained, provide better service, require less supervision

CHARACTERISTICS OF THE MARKET-FOCUSED MODEL

(continued)

Employ more full-time employees better for customers and employees companies that pay more are finding

that as a percentage of sales, labor costs are actually lower than industry averages