COPYRIGHT ©2002 Thomson Learning, Inc. Thomson Learning  is a trademark used herein under license. ALL RIGHTS RESERVED. C hapter 1 A n I ntroduction to S ervices

COPYRIGHT ©2002 Thomson Learning, Inc. Thomson Learning  is a trademark used herein under license. ALL RIGHTS RESERVED. WHAT IS A SERVICE? The Distinction is Unclear: The Scale of Market Entities & The Molecular Model

COPYRIGHT ©2002 Thomson Learning, Inc. Thomson Learning  is a trademark used herein under license. ALL RIGHTS RESERVED. WHAT IS A SERVICE? In General:  Goods  Objects, Devices, Things  Services  Deeds, Efforts, Performances

COPYRIGHT ©2002 Thomson Learning, Inc. Thomson Learning  is a trademark used herein under license. ALL RIGHTS RESERVED. THE BENEFIT CONCEPT  Encapsulation of benefits in the consumers mind  Tide  Cleanliness  Whiteness  Motherhood

COPYRIGHT ©2002 Thomson Learning, Inc. Thomson Learning  is a trademark used herein under license. ALL RIGHTS RESERVED. THE BENEFIT CONCEPT  Services deliver the bundle of benefits through the experience that is created for the consumer  The servuction model provides a framework for understanding the consumer’s experience

COPYRIGHT ©2002 Thomson Learning, Inc. Thomson Learning  is a trademark used herein under license. ALL RIGHTS RESERVED. Invisible Visible Inanimate Environment Contact Personnel Or Service Provider Invisible organization and systems Customer A Customer B The Servuction Model Bundle of service benefits received by Customer A

COPYRIGHT ©2002 Thomson Learning, Inc. Thomson Learning  is a trademark used herein under license. ALL RIGHTS RESERVED. THE INCREASING DEMAND FOR SERVICE KNOWLEDGE  Changes in management perspective  The Industrial Model vs. The Market-focused Model  Growth in service sector employment  Service sector contributions to the world economy  Deregulation

COPYRIGHT ©2002 Thomson Learning, Inc. Thomson Learning  is a trademark used herein under license. ALL RIGHTS RESERVED. THE DEMAND FOR KNOWLDEGE: SERVICE SECTOR EMPLOYMENT  Service Sector Employment:  78% in United States  73% in Great Britain  62% in Japan  57% in Germany  90% of All Jobs by 2020  New Job Creation:  80% of All New Jobs ( )  90% of All New Jobs ( )  88% of All Jobs by 2005 * 42% of Work Force is Providing Some Form of Personal Service

COPYRIGHT ©2002 Thomson Learning, Inc. Thomson Learning  is a trademark used herein under license. ALL RIGHTS RESERVED. THE DEMAND FOR KNOWLEDGE: CONTRIBUTIONS TO THE ECONOMY  Economic impact:  The service sector accounts for over 70% of the United States’ gross domestic product (GDP)  The majority of industries in the U.S. economy do not produce, they perform

COPYRIGHT ©2002 Thomson Learning, Inc. Thomson Learning  is a trademark used herein under license. ALL RIGHTS RESERVED. THE DEMAND FOR KNOWLEDGE: THE IMPACT OF DEREGULATION  Between  U.S. airlines declined from 36 to 12  the number of trucking companies that failed during the 1980s was more than the previous 45 years combined  commercial banks declined by 14% Effect of Deregulations Effect of Deregulations:  No demand for services knowledge when demand exceeded supply and competitive pressures were few

COPYRIGHT ©2002 Thomson Learning, Inc. Thomson Learning  is a trademark used herein under license. ALL RIGHTS RESERVED. THE DEMAND FOR KNOWLEDGE: THE IMPACT OF DEREGULATION Effect of Deregulations : Effect of Deregulations (continued): Knowledge is needed in nonprice issues:  customer service  customer retention  image enhancement  transforming public contact personnel into marketing-oriented personnel

COPYRIGHT ©2002 Thomson Learning, Inc. Thomson Learning  is a trademark used herein under license. ALL RIGHTS RESERVED. THE INDUSTRIAL MODEL  Sales Revenues are a function of:  location Strategies  sales Promotions  advertising

COPYRIGHT ©2002 Thomson Learning, Inc. Thomson Learning  is a trademark used herein under license. ALL RIGHTS RESERVED. THE INDUSTRIAL MODEL (continued)  Labor and operating costs should be kept as low as possible  better to rely on machines than humans  narrowly defined jobs  Leave little room for discretion  believes most employees are indifferent, unskilled, and incapable of completing complex tasks.  performance expectations are low  wages are kept low  few opportunities for advancement

COPYRIGHT ©2002 Thomson Learning, Inc. Thomson Learning  is a trademark used herein under license. ALL RIGHTS RESERVED. THE INDUSTRIAL MODEL (continued)  Places a higher value on upper and middle managers  Replaces full-time personnel with part-time personnel to reduce costs

COPYRIGHT ©2002 Thomson Learning, Inc. Thomson Learning  is a trademark used herein under license. ALL RIGHTS RESERVED. CONSEQUENCES OF THE INDUSTRIAL MODEL (employee)  Guarantees a cycle-of-failure  Encourages front-line personnel to be indifferent to problems  no opportunity for advancement (dead-end jobs)  poor pay  some companies let employees go before mandatory raises

COPYRIGHT ©2002 Thomson Learning, Inc. Thomson Learning  is a trademark used herein under license. ALL RIGHTS RESERVED. CONSEQUENCES OF THE INDUSTRIAL MODEL (employee)  poor pay has created a new class of migrant worker  16 million people now travel from one short-term job to another  superficial training  focuses only on product knowledge  little, if any, company benefits  Prohibits employees from taking discretionary action  High employee turnover rate

COPYRIGHT ©2002 Thomson Learning, Inc. Thomson Learning  is a trademark used herein under license. ALL RIGHTS RESERVED. CONSEQUENCES OF THE INDUSTRIAL MODEL (customers)  Customer dissatisfaction  2/3 of customer’s defect, not due to the product, but due to the unhelpfulness of the provider  flat and declining sales revenues  Overall the industrial approach is bad for:  employees  customers  shareholders  country

COPYRIGHT ©2002 Thomson Learning, Inc. Thomson Learning  is a trademark used herein under license. ALL RIGHTS RESERVED. THE MARKET-FOCUSED MANAGEMENT MODEL  Purpose of the firm is to serve the customer  Service delivery is the focus of the system and the overall differential advantage in terms of competitive advantage  The services triangle provides a framework for the services model

COPYRIGHT ©2002 Thomson Learning, Inc. Thomson Learning  is a trademark used herein under license. ALL RIGHTS RESERVED. THE SERVICES TRIANGLE The service strategy The customer The systems The people The organization exists to serve the needs of the people who serve the customer The company exists to serve the customer

COPYRIGHT ©2002 Thomson Learning, Inc. Thomson Learning  is a trademark used herein under license. ALL RIGHTS RESERVED. THE SERVICES TRIANGLE 1. Communicate the service strategy to the customer 2. Customer/employee interaction:  greatest opportunity for gains and losses  moments-of-truth  critical incidents 3. Customer/procedures & physical hardware  A.T.M. machines  cramped airline seats

COPYRIGHT ©2002 Thomson Learning, Inc. Thomson Learning  is a trademark used herein under license. ALL RIGHTS RESERVED. 4. Organizational systems may prevent employees from giving good service employees from giving good service 5. Physical and administrative systems should flow logically from the service should flow logically from the service strategy strategy 6. Good service starts at the top * MGT. should “Walk What They Talk” and provide: -sense of focus -clarity-priorities THE SERVICES TRIANGLE

COPYRIGHT ©2002 Thomson Learning, Inc. Thomson Learning  is a trademark used herein under license. ALL RIGHTS RESERVED. CHARACTERISTICS OF THE MARKET-FOCUSED MODEL  Believes employees want to do good work  invests in people as much as machines  technology is used to assist people (not to monitor there every activity)  data is made available to the front-line

COPYRIGHT ©2002 Thomson Learning, Inc. Thomson Learning  is a trademark used herein under license. ALL RIGHTS RESERVED. CHARACTERISTICS OF THE MARKET-FOCUSED MODEL (continued)  Recognizes that employee turnover and customer satisfaction are closely related  tie pay to performance  focus on selection and training of personnel  Ryder Truck  no training (41% turnover)  received training (19% turnover)  better trained, provide better service, require less supervision

COPYRIGHT ©2002 Thomson Learning, Inc. Thomson Learning  is a trademark used herein under license. ALL RIGHTS RESERVED. CHARACTERISTICS OF THE MARKET-FOCUSED MODEL (continued)  Employ more full-time employees  better for customers and employees  companies that pay more are finding that as a percentage of sales, labor costs are actually lower than industry averages