Chapter 02The Nature of Services

McGraw-Hill/IrwinService Management: Operations, Strategy, and Information Technology, 6e

Copyright © 2008 by The McGraw-Hill Companies, Inc. All Rights Reserved.

Learning Objectives

Explain what is meant by a service-product bundle. Identity and critique the five distinctive

characteristics of a service operation and explain the implications for managers.

Explain how services can be described as customers renting resources.

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

Use the service process matrix to classify a service. Explain how a strategic classification of services

can be helpful to managers. Explain the role of a service manager from an

open-systems view of service. 2-2

Service-Product Bundle

Element Core GoodsExample

Core ServiceExample

Business Custom clothier Business hotel

Core Business suits Room for the night

PeripheralGoods

Garment bag Bath robe

PeripheralService

Deferred payment plans

In house restaurant

Variant Coffee lounge Airport shuttle2-3

Distinctive Characteristics of Services

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 involvement in delivery process results in variability

Customer Participation in the Service Process: attention to facility design, opportunities for co-production, concern for customer and employee behavior

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Non-ownership Classification of Services

Type of Service Customer value Examples Management Challenge

Goods rental Obtain temporary right to exclusive use

Vehicles, tools, furniture, equipment

Site selection and maintenance

Place and space rental

Obtain exclusive use of defined portion of a larger space

Hotel room, seat on airplane, storage unit

Housekeeping and achieving economies of scale

Labor and expertise

Hire other people to do a job

Car repair, surgery, management consulting

Expertise is a renewable resource, but time is perishable

Physical facility usage

Gain admission to a facility for a period of time

Theme park, camp ground, physical fitness gym

Queuing and crowd control

Network usage Gain access to participate Electric utility, cell phone, internet

Availability and pricing decisions

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Implications of Rental/Usage Paradigm

Creates the option of renting a good upon demand rather than purchase.

Service often involves selling slices of larger physical entities.

Labor and expertise are renewable resources. Time plays a central role in most services. Service pricing should vary with time and

availability.

Question: Can services in general be described as customers sharing resources?

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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.

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.

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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 banking * Architects

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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

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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 Wholesale buying club Movie theater Airline frequent flyer Public transportation

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Strategic Service Classification (Customization and Judgment)

Strategic Service Classification (Customization and Judgment) Degree of Customization

Extent to Which Personnel Exercise Judgment inMeeting 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

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Strategic Service Classification (Nature of Demand and Capacity)

Strategic Service Classification (Nature of Demand and Capacity)

Extent of Demand Fluctuation over Time

Extent to Which Demand Exceeds Capacity Wide Narrow

Electricity Insurance

Peak demand can Telephone Legal services

met without a major delay Police emergency Banking

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

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Strategic Service Classification (Method of Service Delivery)

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

OutletsNature of Service Delivery Single site Multiple site

Customer travels to Theater Bus service

service organization Barbershop Fast-food chain

Service firm delivers Taxi Mail delivery

Pest control service AAA emergency repairs

Transaction at Credit card company Broadcast network

arm’s length Local TV station Telephone company

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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

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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?

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Xpresso Lube Facility

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Xpresso Lube’s Service Package Supporting Facility

Facilitating Goods

Information

Explicit Services

Implicit Services

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Xpresso Lube’s Distinctive Service Characteristics Intangibility

Perishability

Heterogeneity

Simultaneity

Customer Participation in the Service Process

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Xpresso Lube’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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Beyond Xpresso Lube

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?

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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?

Illustrate the “distinctive characteristics of service operations” for a service with which you are familiar.

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

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Interactive Class Exercise

The class breaks into five groups and each group is 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.

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