The Nature of Services McGraw-Hill/Irwin Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.

Service-Product Bundle ElementCore Goods Example Core Service Example BusinessCustom clothierBusiness hotel CoreBusiness suitsRoom for the night Peripheral Goods Garment bagBath robe Peripheral Service Deferred payment plans In house restaurant VariantCoffee loungeAirport 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 ServiceCustomer valueExamplesManagement Challenge Goods rentalObtain 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 expertiseHire 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 usageGain access to participateElectric utility, cell phone, internet Availability and pricing decisions 2-4

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? 2-5

Service Package Service Experience Explicit Services Implicit Services Supporting Facility Facilitating Goods Information 2-6

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. 2-7

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. 2-8

Village Volvo’s Service Package Supporting Facility Facilitating Goods Information Explicit Services Implicit Services 2-9

Village Volvo’s Distinctive Service Characteristics Intangibility Perishability Heterogeneity Simultaneity Customer Participation in the Service Process 2-10

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 2-11

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? 2-12

Xpresso Lube Facility 2-13

Xpresso Lube’s Service Package Supporting Facility Facilitating Goods Information Explicit Services Implicit Services 2-14

Xpresso Lube’s Distinctive Service Characteristics Intangibility Perishability Heterogeneity Simultaneity Customer Participation in the Service Process 2-15

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 2-16

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? 2-17