The Nature Of Services Nguyen Manh Tuan 5/18/2020 nguyen manh tuan – internal use 1 AGENDA Distinctive Characteristics of Service Operations The Service Package Grouping Services by Delivery Process Classifying Services for Strategic Insights An Open-Systems View of Service 5/18/2020 nguyen manh tuan – internal use 2 Learning Objectives Classify a service into 1 of 4 categories using the service process matrix Describe a service using 4 dimensions of the service package Discuss the managerial implications of the distinctive characteristics of a service operation. Discuss the insights obtained from a strategic classification of services Discuss the managerial implications from an open- systems view of service. 5/18/2020 nguyen manh tuan – internal use 3 Distinctive Characteristics of Service Operations The distinction between a product and a service is hard to make Element Core Goods Core Service Example Example Business Custom clothier Business hotel Core Business suits Room for the night Peripheral Goods Garment bag Bathrobe Peripheral Deferred payment plans In house restaurant Service Variant Coffee lounge Airport shuttle (Fitzsimmons Service/Product Bundlenguyen 5/18/2020 manh tuan – internal use & Fitzsimmons 2006) 4 Distinctive Characteristics of Service Operations Distinction between inputs and resources Inputs are the customers themselves, and Resources are the facilitating goods, employee labor, and capital at the command of the service manager To function, the service system must interact with the customers as participants in the service process. Because customers typically arrive at their own discretion and with unique demands on the service system, matching service capacity with demand is a challenge.
Many of the unique characteristics of services, such as customer participation and perishability, are interrelated. 5/18/2020 nguyen manh tuan – internal use 5 Distinctive Characteristics of Service Operations 1. Customer Participation For the customer, service is an experience occurring in the front office of the service facility, and the quality of service is enhanced if the service facility is designed from the customer’s perspective. An important consideration in providing a service is the realization that the customer can play an active part in the process.
Taking the customer out of the process, however, is becoming a common practice. 5/18/2020 nguyen manh tuan – internal use 6 Distinctive Characteristics of Services Operations 2. Intangibility (I) Services are ideas and concepts; products are things. Therefore, it follows that service innovations are not patentable.
To secure the benefits of a novel service concept, the firm must expand extremely rapidly and preempt any competitors. Franchising has been the vehicle to secure market areas and establish a brand name. Franchising allows the parent firm to sell its idea to a local entrepreneur, thus preserving capital while retaining control and reducing risk. 5/18/2020 nguyen manh tuan – internal use 7 Distinctive Characteristics of Services Operations 2.
Intangibility (I) (cont’) When buying a product, the customer is able to see it, feel it, and test its performance before purchase. For a service, however, the customer must rely on the reputation of the service firm. In many service areas, the government has intervened to guarantee acceptable service performances Through the use of registration, licensing, and regulation, the government can assure consumers that the training and test performance of some service providers meet certain standards. In its efforts to “protect” the consumer, however, the government may be stifling innovation, raising barriers to entry, and generally reducing competition 5/18/2020 nguyen manh tuan – internal use 8 Distinctive Characteristics of Services Operations 3.
Heterogeneity (H) The combination of the intangible nature of services and the customer as a participant in the service delivery system results in variation of service from customer to customer The interaction between customer and employee in services, however, creates the possibility of a more satisfying human work experience. In services, work activity generally is oriented toward people rather than toward things 5/18/2020 nguyen manh tuan – internal use 9 Distinctive Characteristics of Services Operations 3. Heterogeneity (H) (cont’) In the limited customer-contact service industries, we now see a dramatic reduction in the level of labor intensiveness through the introduction of self-service technology Even the introduction of automation may strengthen personalization by eliminating the relatively routine impersonal tasks, thereby permitting increased personal attention to the remaining work. At the same time, personal attention creates opportunities for variability in the service that is provided.
This is not inherently bad, however, unless customers perceive a significant variation in quality 5/18/2020 nguyen manh tuan – internal use 10 Distinctive Characteristics of Services Operations 3. Heterogeneity (H) (cont’) A customer expects to be treated fairly and to be given the same service that others receive. The development of standards and of employee training in proper procedures is the key to ensuring consistency in the service provided. It is rather impractical to monitor the output of each employee, thus, customers play a role in quality control through their feedback The direct customer–employee contact has implications for service (industrial) relations as well “In the service business you can’t make happy guests with unhappy employees.” 5/18/2020 nguyen manh tuan – internal use 11 Distinctive Characteristics of Services Operations 4.
Simultaneity/ Inseparability (I) The fact that services are created and consumed simultaneously and, thus, cannot be stored is a critical feature in the management of services. The manufacturing facility can be operated at a constant level of output that is most efficient. The factory is operated as a closed system, with inventory decoupling the productive system from customer demand. inventory as a buffer to absorb fluctuations in demand inventory also can be used to decouple the stages in a manufacturing process.
5/18/2020 nguyen manh tuan – internal use 12 Distinctive Characteristics of Services Operations 4. Simultaneity/ Inseparability (cont’) Services, however, operate as open systems, with the full impact of demand variations being transmitted to the system For services, the decoupling is achieved through customer waiting, “queuing” The problems of selecting service capacity, facility utilization, and use of idle time all are balanced against customer waiting time The simultaneous production and consumption in services eliminates many opportunities for quality- control intervention A product can be inspected before delivery, but services must rely on other measures to ensure the quality of services delivered 5/18/2020 nguyen manh tuan – internal use 13 Distinctive Characteristics of Services Operations 5. Perishability (P) A service is a perishable commodity. Because a service cannot be stored, it is lost forever when not used.
The full utilization of service capacity becomes a management challenge, because customer demand exhibits considerable variation and building inventory to absorb these fluctuations is not an option. 5/18/2020 nguyen manh tuan – internal use 14 Distinctive Characteristics of Services Operations 5. Perishability (P) (cont’) Faced with variable demand and a time- perishable capacity to provide the service, the manager has 3 basic options: a. Smooth demand by: Using reservations or appointments.
Using price incentives (e., giving telephone discounts for evening and weekend calls). Demarketing peak times (e., advertising to shop early and avoid the Christmas rush). 5/18/2020 nguyen manh tuan – internal use 15 Distinctive Characteristics of Services Operations 5. Adjust service capacity by: Using part-time help during peak hours.
Scheduling work shifts to vary workforce needs according to demand (e., telephone companies staff their operators to match call demand). Increasing the customer self-service content of the service. Allow customers to wait 5/18/2020 nguyen manh tuan – internal use 16 Distinctive Characteristics of Services Operations 6. Non-transferrable Ownership From a marketing perspective, services, unlike goods, do not involve transfer of ownership One view is that customers gain access or rental of resources for a period of time Service industries share their resources among customers by allocating the use of them.
Customers do not purchase an asset but, instead, have use of the asset for a specific time, whether it is the use of human labor (e., cellular network), or a physical asset (e., theme park) 5/18/2020 nguyen manh tuan – internal use 17 Distinctive Characteristics of Services Operations Non-transferable ownership of Services 5/18/2020 (Fitzsimmons et al 2014) nguyen manh tuan – internal use 18 The Service Package Service managers have difficulty describing their product. This problem is partly a result of the intangible nature of services, but it is the presence of the customer in the process that creates a concern for the total service experience. The service package is defined as a bundle of goods and services with information that is provided in some environment. 5/18/2020 nguyen manh tuan – internal use 19 The Service Package This bundle consists of the following 5 features: 1.
Supporting Facility: The physical resources that must be in place before a service can be offered. Ex: golf course, hospital, airplane. Facilitating Goods: The material purchased or consumed by the buyer, or items provided by the consumer. Ex: golf clubs, medical supplies, airline seats 3.
Information: Operations data or information that is provided by the customer to enable efficient and customized service. Ex: golf season, patient medical records, seats available on a flight 5/18/2020 nguyen manh tuan – internal use 20 The Service Package 4. Explicit Services: Benefits readily observable by the senses. The essential or intrinsic features.
Ex: golf fanatic, diagnostic value, on-time departure 5. Implicit Services: Psychological benefits or extrinsic features which the consumer may sense only vaguely. Ex: golf fan, nursing skills, security of a well lighted parking lot 5/18/2020 nguyen manh tuan – internal use 21 The Service Package Criteria for Evaluating the Service Package 5/18/2020 (Fitzsimmons et al 2014) nguyen manh tuan – internal use 22 The Service Package 5/18/2020 Criteria for Evaluating the Service Package nguyen manh tuan – internal use 23 (Fitzsimmons et al 2014) Grouping Services by Delivery Process Concepts of service management should be applicable to all service organizations. To demonstrate that management problems are common across service industries, Roger Schmenner (1986) proposed the service process matrix Services are classified across two dimensions that significantly affect the character of the service delivery process 5/18/2020 nguyen manh tuan – internal use 24 Grouping Services by Delivery Process Degree of labor Degree of Interaction and Customization 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 5/18/2020 nguyen manh (Fitzsimmons Service Process Matrix tuan – internal use et al 2014) 25 Grouping Services by Delivery Process The vertical dimension measures the degree of labor intensity, which is defined as the ratio of labor cost to capital cost.
The horizontal dimension measures the degree of customer interaction and customization, which is a marketing variable that describes the ability of the customer to affect personally the nature of the service being delivered 5/18/2020 nguyen manh tuan – internal use 26 Grouping Services by Delivery Process Service factories provide a standardized service with high capital investment, much like a line-flow manufacturing plant. Service shops permit more service customization, but they do so in a high-capital environment. Customers of a mass service will receive an undifferentiated service in a labor-intensive environment, but those seeking a professional service will be given individual attention by highly trained specialists.