The Nature of Services

Learning Objectives Understanding the managerial implications of the distinctive characteristics of a service operation. Describing a service using the four dimensions of the service package. Insights gained from strategic classifications of services. Challenges for management of service enterprises.

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………………………….

Service/Product Bundle Element Core Goods Example Core Service Business Custom clothier Business hotel Core Business suits Room for the night Peripheral Goods Garment bag Bath robe Service Deferred payment plans In house restaurant Variant Coffee lounge Airport shuttle

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

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 purchased or consumed by the buyer or items provided by the consumer. Examples are food items, auto parts, legal documents, golf clubs.

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.

The Servuction Service Model Customer A Inanimate Environment Invisible Organization And System Customer B Contact Personnel or Service Provider Invisible Visible Bundle of Service Benefits Received By Customer A

Unique Characteristics of Services Intangibility: creative advertising, no patient 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 Site Location: dictated by your customers Customer Participation in the Service Process: attention to facility design but opportunities for co-production Difficulty in measuring quality of output:

Service Process Orientation 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

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

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

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

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

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)

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

Topics for Discussion What are the characteristics of services that will be most appropriate for Internet delivery? Which are not? Illustrate the “distinctive characteristics of service operations” for a service you are familiar with. What are some management problems associated with allowing service employees to exercise judgement in meeting customer needs? Comment on why hospitals, given they are so labor-intensive, are classified as a service shop? What factors are important for a manager to consider when attempting to enhance a service firm’s image?