Chapter 02 The Nature of Services

McGraw-Hill/Irwin Service Management: Operations, Strategy, and Information Technology, 6e Copyright © 2008 by The McGraw-Hill Companies, Inc. All Rights Reserved.

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 2-2

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

2-3

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

2-4

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.

2-5

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.

2-6

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

2-7

Strategic Service Classification (Nature of the Service Act)

Direct Recipient of the Service

Nature 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

2-8

Strategic Service Classification (Relationship with Customers)

Type of Relationship between Service

Organization and Its Customers

Nature 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

2-9

Strategic Service Classification (Customization and Judgment)

Degree of Customization

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

2-10

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

2-11

Strategic Service Classification (Method of Service Delivery)

Availability of Service Outlets

Nature 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

2-12

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 2-13