1. The Nature of Services

2. Proportion of Goods and Services in Purchase Bundle Goods Services 100% 75 50 25 0 25 50 75 100% Self-service gasoline……………. Personal computer…………… Office copier…………………. Fast-food restaurant………… Gourmet restaurant………… Auto repair…………………… Airline flight……………………. Haircut………………………….

3. 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

4. The Service Package n n Supporting Facility: The physical resources that must be in place before a service can be sold. Examples are golf course, ski lift, hospital, airplane. n n Facilitating Goods: The material purchased or consumed by the buyer or items provided by the consumer. Examples are food items, auto parts, legal documents, golf clubs.

5. The Service Package (cont.) n n 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. n n 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.

6. From pure to quasi-manufacturing services n Pure service: high contact n Mixed service: medium contact (front- office) n Quasi-manufacturing: low contact (boundary functions and technical core) n Degree of contact influences time of demand and the exact nature of the service

7. Degree of contact and management decisions High n Location: near customer n Layout: customer physical, psychological needs and expectations n Product Design: environment as well as physical product Low n Near supply, transport, labor n Enhance production n Product defined by fewer attributes

8. Degree of contact and management decisions (cont) High n Process design: stages have direct, immediate effect n Scheduling: customer is in the schedule, immediate service n Production planning: orders cannot be stored Low n Customer not involved in majority of steps n Customer concerned with completion dates n Backlogging and smoothing are possible

9. Degree of contact and management decisions (cont) High n Worker skills: PR n Quality: variable standards and expectations n Time standards: depends on customer needs, loose Low n Technical skills n Standards measurable and fixed n Time can be known

10. Degree of contact and management decisions (cont) High n Wages: variable o/p, time based wage systems n Capacity Planning: meet peak demand n Forecasting: short- term, time oriented Low n Fixed o/p, output based wage systems n Storable output, average demand n Long term, o/p oriented http://www.businessweek.com/2000/00_43/b3704001.htm

11. Degree of contact and management decisions (cont) n HC systems have more uncertainty in day to day operations n It is only by chance that capacity will match demand n Workforce is a signficant PR component n HC systems are at the mercy of time

12. Degree of contact and management decisions (cont) Implications for management n Rationalization is difficult: many factors affect the ultimate quality of the service experience n Distinction should be made between high and low contact elements n Development of 2 types of worker skills

13. Unique Characteristics of Services n n Customer presence: uncertainty on service time, workforce needed, quality of service and operating costs. Attention to facility design and layout Routing the customer through the service system Employee job design Customer job design – – customer expects faster and cheaper service – –manager employs customer to acieve higher capacity utilisation

14. Unique Characteristics of Services n n Intangibility: Customer doesn’t know what level of service s/he will be getting (only minimum levels may be guaranteed through registration, licencing, regulations) Management must identify particular needs and use creative advertising to emphasise abstract benefits Importance of reputation

15. Unique Characteristics of Services n n No patent protection: short life cycles for innovations; quick response to competitive pressure Capture market share as quickly as possible Clear definition of service package, geographic area covered, standard facility design, trademarks to define uniqueness Barriers to entry

16. Unique Characteristics of Services n n Simultaneity: non-inventoriable output Inability to absorb fluctuations in demand – –Manufacturing inventory decouples operations – –Services decoupling is through customer waiting – –Inventory control – queue control Capacity, facility utilisation, idle time balanced against customer waiting time – –Capacity surrogate to inventory – –Cost of idle capacity – inventory holding cost – –Lack of capacity – stock out

17. Unique Characteristics of Services n n Simultaneity (cont) Interaction creates customer perceptions of quality; eliminates opportunites for QC – –Limit discretion of employees – –Standardised procedures Limited geographic area Opportunities for promotional strategies, personal selling

18. Unique Characteristics of Services n n Time-dependant demand: customer demand and arrival patterns difficult to forecast (cyclical, seasonal) Perishability of demand: cannot inventory, opportunity loss of idle capacity, need to match supply with demand Strategies to cope with variability: – –Automation (affects pricing, service time,market positioning, maintenance, layout, workforce), Overlapping shifts, Price incentives, Reservations and appointments, Customer self-service

19. Unique Characteristics of Services n n Heterogeneity: variability in output Due to customer presence and intangibility Difficult to establish and meet standards each time Training employees (Hamburger University) Field inspection

20. Unique Characteristics of Services n n Difficulty in measuring output (number of customers) and evaluating performance (maximizing profit) n n Labor intensiveness Customer/worker interface – marketing/production interface Direct worker affects perceived value of service – –Production as well as marketing skills – –Worker scheduling, training, incentives

21. Unique Characteristics of Services n n Site and size dictated by customer Limited economies of scale Control of decentralised operations (multi-site management) – –Standardise service package – –Extra layers of management – –Automate back room operations n n Resilence to economic cycles: recession proof?

22. Unique Characteristics of Services n n International transportability Legal restrictions Advertisability Adequate channels of distribution Cultural, social norms Political stability Distance Language

23. Service Process Orientation n n Customer as Coproducer n n Front and Back Office Perspectives n n Service Profit Chain Focus on Internal and External Customers n n Quality (perceptions vs expectations) n n Focus on Both Efficiency and Effectiveness n n Use IT as an Enabler for Both Internal and External Customers

24. 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 Equipment repair and maintenance Tangible actions Beauty salons Veterinary care Exercise clinics Janitorial services Restaurants Laundry and dry cleaning Haircutting Landscaping/lawn care People’s minds: Intangible assets: Education Banking Intangible actions Broadcasting Legal services Information services Accounting Theaters Securities Museums Insurance Different forms of delivery or substitutes? DVD, online courses, ATM affect: location, facility design, business hours affect: location, facility design, business hours

25. 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 College enrollment Lighthouse of service Banking Public Highway American Automobile association Long-distance phone calls Restaurant Theater series subscription Mail service Discrete transactions Commuter ticket or transit pass Toll highway Sam’s Wholesale Club Movie theater Egghead computer software Public transportation Strengthen membership relation? Shop & miles, OGS Membership affects competitive advantage (knowing the customer), customer loyalty (frequent flyer awards)

26. 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 Professional services Education (large classes) Surgery Preventive health programs Taxi services College food service High Beautician Plumber Gourmet restaurant Telephone service Public transportation Hotel services Routine appliance repair Low Retail banking (excl. major loans) Movie theater Family restaurant Spectator sports Fast-food restaurant More customization? Multiple screens in cinema, no ketchup in burger Which quadrant is a strategic choice and affects service delivery system

27. 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 Natural gas Legal services usually be met Telephone Banking without a major delay Hospital maternity unit Laundry and dry cleaning Police and fire emergencies Accounting and tax preparation Services similar to those above Peak demand regularly Passenger transportation but with insufficient capacity exceeds capacity Hotels and motels for their base level of Restaurants business How to manage demand? How to control supply? Nature of fluctuation, cause

28. Strategic Service Classification (Method of Service Delivery) Availability of Service Outlets Nature of Interaction between Customer and Service Organization Single site Multiple site Customer goes to Theater Bus service service organization Barbershop Fast-food chain Service organization Lawn care service Mail delivery comes to customer Pest control service AAA emergency repairs Taxi Customer and service Credit card company Broadcast network organization transact at Local TV station Telephone company arm’s length (mail or electronic communications) IT/IS more customized service, efficient, Affects location, quality, consistency

29. Open Systems View of Service Operations 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

30. Topics for Discussion n n What are the characteristics of services that will be most appropriate for Internet delivery? n n When does collecting information through service membership become an invasion of privacy? n n What are some management problems associated with allowing service employees to exercise judgement in meeting customer needs? n n What factors are important for a manager to consider when attempting to enhance a service firm’s image?