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

2. Learning Objectives Explain what is meant by a service-product bundle.
Identity and critique the five distinctive characteristics of a service operation and explain the implications for managers.
Explain how services can be described as customers renting resources.
Describe a service using the five dimensions of the service package.
Use the service process matrix to classify a service.
Explain how a strategic classification of services can be helpful to managers.
Explain the role of a service manager from an open-systems view of service.
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3. 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
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4. 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
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5. 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
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6. 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?
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7. Service Package Supporting Facility Explicit Services Service
Experience
Facilitating
Goods
Information
Implicit Services
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8. 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.
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9. 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.
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10. 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
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11. 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
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12. 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
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13. 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
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14. 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
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15. 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
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16. Foundation Premises of Service-Dominant Logic
Service is the fundamental basis of exchange.
Indirect exchange masks the basis of exchange.
Goods are distribution mechanisms for service provision.
Operant resources are the source of competitive advantage
All economies are service economies.
The customer is always a co-creator of value.
The enterprise can only offer value propositions.
A service-centered view is customer oriented and relational.
All economic and social actors are resource integrators.
Value is uniquely determined by the beneficiary.
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17. 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
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18. Village Volvo’s Service Package
Supporting Facility
Facilitating Goods
Information
Explicit Services
Implicit Services
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19. Village Volvo’s Distinctive Service Characteristics
Intangibility
Perishability
Heterogeneity
Simultaneity
Customer Participation in the Service Process
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20. 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
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21. 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?
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22. Xpresso Lube Facility
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23. Xpresso Lube’s Service Package
Supporting Facility
Facilitating Goods
Information
Explicit Services
Implicit Services
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24. Xpresso Lube’s Distinctive Service Characteristics
Intangibility
Perishability
Heterogeneity
Simultaneity
Customer Participation in the Service Process
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25. 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
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26. 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?
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27. Topics for Discussion
What are the characteristics of services that will be most appropriate for Internet delivery?
When does collecting information through service membership become an invasion of privacy?
What are some management problems associated with allowing service employees to exercise judgement in meeting customer needs?
Illustrate the “distinctive characteristics of service operations” for a service with which you are familiar.
What factors are important for a manager to consider when attempting to enhance a service firm’s image?
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28. Interactive Class Exercise
The class breaks into five groups and each group is assigned one of the service classifications (e.g., nature of act, relationship with customer, customization, nature of demand, or method of delivery) to come up with an example for each of the four quadrants in the matrix.
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