FRONTIERS OF E-BUSINESS RESEARCH 2004

Services, e-Services and e-Service Innovations Combination of Theoretical and Practical Knowledge
Raija Jrvinen1; Uolevi Lehtinen2 Professor of Insurance, raija.jarvinen@uta.fi 2 Professor of Marketing, uolevi.lehtinen@uta.fi
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Abstract The starting point of this article is the earlier service definition by Lehtinen (1984). By the aid of this and other service definitions we examine current definitions of e-services and the most common service characteristics. Thereafter, we study empirically the nature of chosen eservices; bank services, insurance services, financial advice services, hotel booking services, flight and railway ticket services, packaged tour services, real estate services and food takeaway services. Some of these e-services act as core services and some as supplementary services. We limit our study to cover only e-services provided on screen and leave other processes connected to e-services outside the scope of the study. On the basis of the theoretical considerations and empirical analysis we propose new eservice definition and tackle with issues that are essential in new e-service innovations. At the end of the article we discuss the importance of interaction and trust in electronic environment and suggest several viewpoints for future research. Keywords definitions, characteristics, service concept, e-service concept, e-service innovation concept

Background
During the last ten years a large amount of e-services have been launched to electronic markets and the same kind of development will certainly continue. In many cases traditional services have simply moved to electronic environment and human work is partly substituted by computers and software. This was predicted to revolutionize the way of doing marketing in a short period of time. However, the development has been slow, but the trend towards eservices is clear. As Lovelock et al. (2002) point out Internet Revolution is still in its early stages. Rust (2004) indicates that technological development presents service providers new tools and opportunities. Therefore, it is very important to analyze various types of currently marketed e-services and discuss, how these services respond to present state of services marketing literature. Especially of our interest are definitions of service and e-service as well as service characteristics. The boom around service characteristics started in the late 1970's, but after the boom period very little has happened in this area. Recently, some scholars (e.g., Lovelock & Gummesson 2004; Vargo & Lusch 2004a; 2004b) have presented justified criticism against some of the 78

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earlier statements. They have even claimed that sticking to the earlier tradition prevents the fresh ideas in services marketing literature and research. Lovelock and Gummesson (2004) remind that there is a lack of research containing the complex and varied properties of all types of services. Moreover, they pay attention to information technology that no doubt affects the content of services and service characteristics, but there is not enough research to show this affection. In this respect, service definitions have to some extent evolved within time, examples of which we will present later in this article. The purpose of this article is to discuss how e-services fit to traditional service conceptualisation and how they can be characterised. The article is two-folded; it includes theoretical considerations of e-service concepts and their characteristics and empirical study of various types of e-services including both core and supplementary services. Thereafter we propose a new e-service definition, that is intended to be a general definition and therefore, exceptions cannot be avoided. At the end of the article we discuss new e-service innovation perspectives by combining both theoretical and empirical knowledge. The reason behind is our strong belief that proper e-service innovation calls for conceptual roots connected to empirical analysis forming the solid ground for new e-services. In this article we limit our examination to e-services provided on the screen, and thus we leave outside the scope of the study those service processes that do not occur on the screen.

About services and e-service definitions

The starting point of our article is to revisit the rather early article of Lehtinen (1984). In that article he defined services as follows: "Service, actually a service-like marketed entity, is a benefit providing object of transaction that is a more or less abstract activity or process of activities essentially produced, marketed and consumed in a simultaneous interaction." More recently some other service scholars have also adopted the interactive element in their definitions, e.g., Lovelock (2001) defines services "as an act or performance offered by one party to another ()". Also Grnroos (2000) stresses process nature and interaction between customers and service providers. Moreover, Liljander and Strandvik (1995) divide services to episodic and relational ones, where the latter comprises the interactive nature of services. There is no unique way to define e-services, even though the term is commonly used in the current literature concerning electronic commerce. According Rust and Lemon (2001) "e-Service is providing consumers with a superior experience with respect to the interactive flow of information." Rust and Kannan (2002) state that "e-Service can be defined as the provision of service over electronic networks such as the Internet" 79

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Zeithaml (2002) includes both pre- and post-Web site service aspects into the concept of eservice quality. However, none of the authors pay attention to describing e-service content or characteristics in their definitions. The above shows that the discussion of definition, content and characteristics of e-services are really needed. Technology based services have been categorized by various authors, e.g., Bitner et al (2000) and Dabholkar (1994). Heinonen (2004) has even defined a technology-based service "as a service with both tangible and intangible elements that is performed totally or partly by the customer via a technology interface". From our perspective e-service is a different concept compared to technology-based service. The deviation between the two concepts can be illustrated by the aid of two examples from financial sector. Namely, there are services that benefit from the IT, such as ATM banking services and unit-linked insurance, but they are not e-services. The definitions of e-service presented above do not emphasize its characteristics, but only refer to services that are delivered special way, namely through electronic channels. These channels most often refer to the Internet even though there exist other electronic channels (see Jrvinen et al 2003). We consider the discussion of characteristics utmost important in connection with e-services, because through characteristics the content of e-service concept can be defined properly. This is the reason for analysing the common service characteristics in our empirical study. Following the reminder by Grnroos (1991) that it is more useful to examine service characteristics than attempt to create the most perfect definition of services we move to that section.

About basic service and e-service characteristics

In his earlier article containing service definition Lehtinen (1984) refers to four basic service characteristics, which usually are connected to services, namely: 1) abstract nature, i.e. intangibility, 2) process nature, 3) simultaneousness of production, marketing (!) and consumption that is often called inseparability, and 4) the interactive nature. Liljander and Strandvik (1995) call the latter relational nature. Particularly we examine these four characteristics from the viewpoint of e-services. The characteristics and our reasoning are shortly discussed in connection of each empirical finding in the next section. Here we limit ourselves to the above four characteristics. Therefore, we do not take into account the other, often-referred service characteristics, namely, heterogeneity, perishability and ownership (see e.g. Zeithaml and Bitner 1996). The first reason is that up to our mind it is unclear if they are distinct service characteristics at all. Also many - if not most - goods are e.g. heterogeneous, and they do not necessarily have to be owned, but many of them can also be rented. In addition, just-in-time production methods target to perishability rather than storing the goods. Our choice is, however, only one alternative way to examine services, but there are also other reasons for this choice. Heterogeneity in services is originally based on staff performance, but Zeithaml and Bitner (2003) noted that no two customers are precisely alike and they have unique demands. In addition, other customers' presence may affect the performance (Lovelock & Gummesson 2004). Therefore, the main reason to exclude heterogeneity is the fact that e-services have to 80

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be highly standardised and they do not allow variation caused by personnel. Even though an e-service is differentiated and offered to various segments, it most often consists of standardised elements (see Lehtinen and Jrvinen 1996; Vuorinen et al. 1998; Jrvinen et al 2003). Thus, heterogeneity is nearly vanished from e-services. Perishability refers to the idea that services cannot be saved, stored, resold or returned, but according to Lovelock (1986) it represents rather production capacity and not the service itself. From our perspective, there are arguments against perishability: it can be avoided by timing capacity of resources or reserving service beforehand, where cancellation frees option to attend for other customers. Lovelock and Gummesson (2004) call this preproduction that includes calculation of capacity for specific dates and even times of day. They found that especially information-based services allow recording, replay and reuse. On our opinion, reuse suits well to all kinds of e-services and therefore, this is one reason not include it our study. Our decision receives also support from Lovelock and Gummesson (2004), when they claim that perishability is destroyed from information-based services. Traditionally it has been argued in connection with services that there is no ownership change. However, the studies of Jrvinen (1998) and Jrvinen et al. (2001; 2004) prove that ownership is transferred in many financial services, but there are also other financial services that do not employ the issue of ownership. Lovelock and Gummesson (2004) propose that services that do not involve a transfer of ownership are distinctively different from those that do. When they dust off the characteristics of non-ownership they identify all kind of rentals, access and usage. E.g., network access and usage take renting as the right to participate in a specified network such as telecommunications, utilities, banking, insurance, or specified information services. However, our perspective in this article is within the contents of services, not the way they are obtained and therefore, we do not examine ownership in our empirical study.

Examining e-service characteristics and definition

In many contexts (e.g. Heinonen 2004) it is stated that especially information-based services fit to electronic-based service channels. As information exchange is about to begin to dominate economic activities (see Vargo and Lusch 2004a) this brings new challenges to eservice activities. Services differ in frequency of use (Nordman 2004). Some services, e.g. insurance are acquired quite rarely, while others, e.g., food take-away and bank transactions are in use weekly or even daily. We agree that these two issues affect the way traditional service can be moved to e-service and whether this movement is successful. We chose following e-services to our empirical examination: e-banking services, e-insurance services, e-financial advise services, hotel e-booking services, flight/railway e-ticket services, packaged tour e-services, real estate e-services and food take-away e-services. It should be pinpointed that we have limited our study to e-services only, i.e. services that are offered through electronic channels and that can be used on the screen. This means that some of the examined services cannot be realized electronically, but they require physical part in order to materialize, which part we have left outside our study and only mention this in each case. For example from the point of view of this article, e-service in connection of flight/railway ticket services ends when the seat is reserved and the ticket is printed and paid even though the 81

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actual flight/railway trip is ahead. Hotel bookings, packaged tours and food take-away are treated similarly.
e-Service e-Banking services e-Insurance services e-Financial advise services Hotel booking e-services Flight/railway e-ticket services Packaged tour e-services Real estate e-services Food take-away e-services Intangibility Yes Yes Yes Yes Yes Yes Yes Yes Process nature Yes Yes Yes Yes Yes Yes Yes Yes Inseparability Yes or partial Partial Yes or no Yes Yes Yes Yes or partial Yes Interaction Mostly automated Mostly automated Mostly automated Automated or none Automated or none Automated or none Mostly automated or none Automated or none

Table 1. e-Services and characteristics examined Table 1 shows how the chosen service characteristics; intangibility, process nature, inseparability and interaction, fit to the selected e-services. These results are mainly based on earlier studies of Jrvinen et al. (2001) and Jrvinen and Heino (2004). Our arguments on behalf of each characteristic can be found below. All studied e-services proved to be intangible in their nature. Real estate e-services and food take-away e-services become more tangible during next phase when a customer goes and sees the estate, purchases it and moves in, and when the take-away e-services are ordered and the food is either collected or transported and finally eaten. The e-service remains intangible, if customer is only using e-services to select and pick up the most interesting objects. For example real estate e-services can be used while saving for mortgage in order to get proper picture of the market and to learn about evaluation of the objects for sale. This can be achieved by studying the location maps, texts and photos of the objects. Only few services are purely intangible in their nature. Lehtinen (1984) suggests terms 'service-like' and 'goods-like' entities to be used to describe whether dealing either with an entity consisting mostly intangible elements or entity consisting mostly tangible elements. Even though banking and insurance services are considered as one of the most abstracts services (see Jrvinen 1998; Jrvinen & Heino 2004; Nordman 2004) they are often made more tangible by the aid of various documents like insurance policy and loan agreement. This is the case with financial advice services also. On their part hotel e-booking, ticket and tour eservices materialize in printed tickets or other printed confirmations. However, some academics (see Zeithaml et al. 1990) have identified tangibles, such as physical facilities, equipment, personnel and communications material as one of the key dimensions of service quality, but in case of e-services all the others but the last one are invisible for customers. All studied e-services contain various processes which customers have to follow in order to get the service. In addition, those processes include some before stated procedures when using e-services, otherwise the system does not function and the expected result remains unseen. Electronic devices are not able to treat every customer individually and IT-systems cannot be developed as unique and variable as the traditional service encounter. Still, customers experience their part of the e-service process differently compared to the processes at service providers' end. 82

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Inseparability of production, marketing and consumption is linked to the concepts of interaction and service encounter (see e.g. Czepiel et al. 1985). By using inseparability as a criterion, the studied e-services deviate from each other. Hotel booking e-services, flight/railways ticket e-services, packaged tour e-services and food take-away e-services are inseparable: customers have to go through suggested route that ends either to ordering or canceling and thus the e-service is produced and consumed simultaneously. In this connection there appear also explicit or implicit marketing. However, the core service itself is consumed later when a ticket is used and the core service is delivered. Therefore, the issue of inseparability can be argued even in the case of e-services. Insurance e-services are essentially marketed and produced simultaneously, but only partially consumed because insurance provides security that lasts whole insurance policy period. Many banking services follow the same mode: customers can enter their bills to netbank before the due date and the bill is paid automatically when it is due. On the other hand, many banking transactions can be executed in-time basis, but for example e-loan applications have to be forwarded beforehand and e-loan decision may take a couple of days. It has to be recognized that even the same group of e-services may contain different characteristics, which is the reason that some authors have categorized even banking services various ways (see e.g. Howcroft et al. 2002). Real estate and financial advice e-services may or may not be inseparable. This is because advice required by customers is not often provided interactively, instead it takes hours or even days to provide the information required. Usually those organisations provide basic information on the screen, for example most common financial advice asked is often provided automatically and in standardised form and only the special issues are handled individually. Thus, part of the e-service can be considered inseparable. In addition, e-service is unable to provide perfect information, and in e.g. case of real estate services customers have to visit in the premises when the real estates are introduced before decision-making. Interaction in e-services materializes in the interaction between customers and service providers. Many e-services have eliminated personal interaction and customers are interacting only with their computers. We call this automated interaction. In addition, Bitner et al. (2000) suggest that technology is eliminating interpersonal service encounters altogether. In that sense all kinds of reservation systems (hotel, flight/railroad tickets, packaged tour and food take-away) represent automated interaction, whereas banks, insurance companies and financial advisers offer some e-services that are linked to human interaction even though not often in-time basis. Some real estate agents have also partial human interaction service, but not all of them. Our term mostly automated in Table 1 refers to connecting partial human interaction to automated interaction. Our empirical study revealed interaction as most interesting of the studied e-service characteristics as it includes more variation among services than other studied characteristics. Even Vargo and Lusch (2004a) emphasize the social processes, i.e. interaction, in connection with services. We on our part raise two questions: 1) what is really interaction in e-context? 2) Does interaction always require personal or personalized response, or can automated standard reply be considered as essential element of interaction?

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The key issue in interaction is a prompt response, but empirical studies show that there are still companies that do not confirm e-orders or reply e-mails. In Table 1 such situations are called none interaction. In these cases even automated response systems are better than nonresponse. Lovelock et al (2002) emphasize that human factor plays a lesser role in e-services than in face-to-face or even telephone-based services. But as soon as anything goes wrong, personal interaction is vital in performing service recovery and human work important in solving technical problems. On the basis of the former discussion, we finally propose a new definition for e-services: e-Service is a benefit providing object of transaction that can be characterized as an intangible process that is at least partially produced, marketed and consumed in a simultaneous interaction through electronic networks. It should be emphasised that our above definition is meant to be a general definition and there exist exceptions, especially in ways how to interact with customers. Some service providers may choose automated interaction, some try to obtain human touch, some try to combine automated and human touch, and some submit none interaction.

Propositions for e-service innovations

Lovelock and Gummesson (2004) call for managerial understanding when it is decided to which extent each individual service characteristic has and should have an impact on marketing strategy. We like even to propose that service characteristics are crucial elements in all new service innovations. Hill and Jones (1998) define innovations as "the process by which organisations use their skills to develop new goods and services or to develop new production and operating systems so that they can better respond to the needs of their customers". Otherwise than Hill and Jones we do not consider innovations only as innovation processes, because they can in some cases even be born at very moment, even though they often require systematic work on beforehand. Thus, we formulate the definition of innovations in service context as follows: Service innovations are new services or new service marketing and/or production processes targeted to respond better to the needs of customers and invented by using skills and capabilities of service providers in a simultaneous interaction through electronic network. Respectively we define e-service innovations in the following way: e-Service innovations are new e-services or new e-service marketing and/or production processes targeted to respond better to the needs of customers and

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invented by using skills and capabilities of service providers in a simultaneous interaction through electronic network. Lovelock et al. (2002) have identified seven categories for new service development. Only the two first categories include clear innovations, but also in some other categories there are innovative elements. The first category deals with major service innovations that are new core services for markets that have not been previously defined and the second category contains major process innovations in which existing services are produced and delivered through new processes with additional benefits. The other categories concern product line extensions by offering new services to existing customers, process line extensions delivering existing services distinctive new ways, supplementary service innovations that can be either new services or improvements of former supplementary services, service improvements and style changes. The two last categories are the most common types in practise. We consider all service improvements valuable, but encourage service providers for proper innovations when there are real possibilities, i.e. e-services that offer clearly new benefits for new customer segments. We agree with Vargo and Lusch (2004a) when they argue that success does not come from finding ways to provide efficient, standardized solutions but from making it easier to customers to acquire customized service solutions. That solution can be offered in a form of e-service packages including core service plus all necessary supplementary services (see e.g. Grnroos 2000; Jrvinen 1998; Normann 1991). Achrol and Kotler (1999) even extend this issue to 'customer-consulting function'. Customers have a choice: to engage in self-service (i.e. do it yourself activity) or use traditional individual services. However, to be successful at self-service, customers have to have sufficient physical and mental skills and/or appliances to make self-service possible (Vargo and Lusch 2004a). This is not always the case. Therefore, customers need proper infrastructure. On the other hand, comparing e-services with traditional services, it is clear for us that methods to concrete services deviate and there are various ways to visualize e-services on the screen that are not available in traditional service encounters. This issue calls for new ways to look at e-service innovations. One new way is to design e-services to educate customers as in the case reported by Reichheld and Schefter (2000). A great challenge lies in the continuum between personal interaction and automated interaction. Each service provider has to decide its strategy towards the element of interaction and find a balance between technology and human touch (see Jrvinen et al. 2003). In this Vargo and Lusch (2004a) suggest that the goal should be in developing ongoing communication processes or dialogues. However, Lovelock et al (2002) warn not to rush to adopt new e-strategies without thinking through the implications for customers, employees and overall operating system, because it may end up to pain. This requires careful consideration of the characteristics and content of each e-service in question. Internet business is conducted at a distance and risk and uncertainties are magnified. Thus customers have to rely on image and promises. In this trust assists keeping customers. Reichheld and Schefter (2000) cite Internet shoppers' most important attribute as follows: "a Web site I know and trust". All other attributes like low cost and broad selection stay far behind. Without trust service providers cannot manage referrals. Reichheld and Schefter (2000) point out that word of mouse spreads even faster than word of mouth, and therefore, 85

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referrals on the Internet are even more lucrative than in traditional services. However, the Internet is fast in good and bad: trust can be changed to untrust and referrals become as curse. Trust and loyalty are intertwined. Reichheld and Schefter (2000) argue that e-business makes customer loyalty more important than ever and loyalty is an economic necessity: acquiring customers on the Internet is enormously expensive and only if those customers make repeat purchases over the years, profits will remain. The only way to avoid negative publicity is to earn trust every day and keep it over tomorrow. This, on its part, calls for better understanding of e-service characteristics and their importance in the context of whole e-service defining.

Concluding remarks and suggestions for future research

In this article we discussed definitions and characteristics of services and e-services, and studied empirically, how the chosen four basic service characteristics, intangibility, process nature, inseparability and interaction fit to e-services. We found that inseparability and interaction varied among various e-services in a way that inseparability was fulfilled partially in three services, namely bank, insurance and real estate services. On its part interaction between customers and service providers was mostly automated in case of four studied eservices: bank, insurance, financial advice and real estate services, but they may contain human interaction; in some cases customers are provided individual information or other service. The other studied e-services lack human touch totally, but they have developed automated response system. Still, among them are service providers in some service branches that rely to none response. On the basis of theoretical and empirical findings we proposed a new definition for e-services. Reasons to move e-services variate. Some service providers seek only competition on price whereas others add value through innovative e-service. It is also self-evident, that not every service can be completely electronic. The clear option is only available for information based core services that can be marketed and delivered electronically (see Lovelock et al. 2002). Otherwise e-service is often a supplementary service or subprocess of service delivery, whereas core services cannot be electronised. Internet attracts some service providers in cost saving purposes only, but Lovelock et al. (2002) remind that IT is much more than saving money. On our opinion, cost saving purposes may even ruin the concept of successful eservices, because during the innovation phase the costs are usually even higher than in production phase. It is essential to maintain trust in the electronic environment and if customers find out that the only purpose for e-business is to save money at service providers side, they may loose their trust.

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At the beginning of this article we referred to the recent critic presented towards traditional service characteristics by Lusch and Vargo (2004a; 2004b) and Lovelock and Gummesson (2004) and claimed the lack of empirical research testing various service characteristics. This study confirmed us that more empirical but also theoretical research is required at least from three angles: 1. Basic characteristics of e-services: Are they really those listed earlier in this article or are there some that do no belong to that group or are there some new characteristics that fit even better to e-services than those now used? 2. Deviations between various e-services: Do some characteristics fit better to some eservices than other? In this we refer to Lovelock and Gummesson (2004) when they raise ownership and non-ownership as one characteristic that differentiate services from each other. 3. Managerial implications for e-service characteristics: How service marketing, delivery and production processes change according to change in service characteristics? Finally, we draw attention to one alternative future trend assuming that all services will be to large extent digitalised and at least partly automated. If this assumption becomes true, it means that part of the staff working at service sector can be moved to other sectors and services with human touch will become luxury. However, the most demanding and most information intensive services may not be at all suitable for the electronic environment. The other part of the story is human need for social relationships, e.g. the study of Jrvinen and Heino (2004) reveal that the old-age consumers rely on human services that same time activated them and provided motivation for their every day routines. In addition, the preliminary results of the empirical data of students opinions towards e-services indicate that even a considerable part of the younger generation speak on favour of human touch services. This kind of results is a challenge for service studies but also for business research in general.

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