The Nature of Services

1. The Nature of Services

2. Learning Objectives • Classify a service into one of four categories using the service process matrix. • Describe a service using the four 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 role of a service manager from an open-systems view of service.

3. 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………………………….

4. The Service Process Matrix Degree Degree of Interaction and Customization of labor IntensityLow 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. 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.

6. 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.

7. 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 • Customer Participation in the Service Process: attention to facility design but opportunities for co-production

8. 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

9. Strategic Service Classification (Nature of the Service Act) Direct Recipient of the Service Nature of the Service ActPeople 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

10. 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

11. 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

12. Strategic Service Classification (Nature of Demand and Supply) Extent of Demand Fluctuation over Time Extent to which Supply Is ConstrainedWide 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

13. Strategic Service Classification (Method of Service Delivery) Availability of Service Outlets Nature of Interaction between Customer and Service OrganizationSingle 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)

14. 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 demandService operations managerService 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

15. Village Volvo’s Service Package • Supporting Facility • Facilitating Goods • Explicit Services • Implicit Services

16. Village Volvo’s Distinctive Characteristics • Intangibility • Perishability • Heterogeneity • Simultaneity • Customer Participation in the Service Process

17. 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?

18. Topics for Discussion • What are the characteristicsof 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? • What factors are important for a manager to consider when attempting to enhance a service firm’s image?