Chapter 02 The Nature of Services

McGraw-Hill/Irwin Service Management: Operations, Strategy, and Information Technology, 6e

Copyright 2008 by The McGraw-Hill Companies, Inc. All Rights Reserved.

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 opensystems view of service.
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Service-Product Bundle
Element
Business Core

Core Goods Example Custom clothier Business suits Garment bag

Deferred payment plans Coffee lounge

Core Service Example Business hotel Room for the night Bath robe
In house restaurant Airport shuttle
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Peripheral Goods Peripheral Service Variant

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 coproduction, concern for customer and employee behavior
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Non-ownership Classification of Services

Type of Service Goods rental Customer value Obtain temporary right to exclusive use Obtain exclusive use of defined portion of a larger space Hire other people to do a job Gain admission to a facility for a period of time Gain access to participate Examples Vehicles, tools, furniture, equipment Hotel room, seat on airplane, storage unit Car repair, surgery, management consulting Theme park, camp ground, physical fitness gym Electric utility, cell phone, internet Management Challenge Site selection and maintenance Housekeeping and achieving economies of scale Expertise is a renewable resource, but time is perishable Queuing and crowd control

Place and space rental Labor and expertise Physical facility usage Network usage

Availability and pricing decisions

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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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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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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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The Service Process Matrix

Degree of labor Intensity Degree of Interaction and Customization Low High Service Factory Service Shop * Airlines * Hospitals * Trucking * Auto repair * Hotels * Other repair services * Resorts and recreation
Mass Service * Retailing * Wholesaling * Schools * Retail banking Professional Service * Doctors * Lawyers * Accountants * Architects
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Low

High

Strategic Service Classification (Nature of the Service Act)

Direct Recipient of the Service

Nature of the Service Act

People Peoples bodies:

Health care Passenger transportation

Things Physical possessions:

Freight transportation Repair and maintenance Veterinary care Janitorial services Laundry and dry cleaning

Tangible actions

Beauty salons Exercise clinics Restaurants

Peoples minds:
Education

Intangible assets:
Banking

Intangible actions

Broadcasting Information services Theaters Museums

Legal services Accounting Securities Insurance

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Strategic Service Classification (Relationship with Customers)

Type of Relationship between Service Organization and Its Customers Nature of Service Delivery
Membership relationship
Insurance Telephone subscription

No formal relationship
Radio station Police protection Lighthouse Public Highway

Continuous delivery of service

Electric Utility Banking

Long-distance phone calls Theater series tickets

Restaurant Pay phone Toll highway Movie theater Public transportation

Discrete transactions

Transit pass Wholesale buying club Airline frequent flyer

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Strategic Service Classification (Customization and Judgment)

Degree of Customization

Extent to Which Personnel Exercise Judgment in Meeting Customer Needs

Surgery High Taxi services

High

Low

Preventive health programs Gourmet restaurant Education (large classes) Family restaurant

Telephone service Hotel services

Public transportation Spectator sports

Low

Retail banking Cafeteria

Movie theater Institutional food service

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Strategic Service Classification (Nature of Demand and Capacity)

Extent of Demand Fluctuation over Time

Extent to Which Demand Exceeds Capacity

Electricity

Wide
Insurance

Narrow

Peak demand can met without a major delay

Telephone Police emergency Hospital maternity unit

Legal services Banking Laundry and dry cleaning

Tax preparation

Fast food restaurant Movie theater Gas station

Peak demand regularly exceeds capacity

Passenger transportation Hotels and motels

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Strategic Service Classification (Method of Service Delivery)

Availability of Service Outlets

Nature of Service Delivery

Customer travels to service organization

Single site

Multiple site

Theater Barbershop

Bus service Fast-food chain

Service firm delivers

Taxi Pest control service

Credit card company Local TV station

Mail delivery AAA emergency repairs

Broadcast network Telephone company

Transaction at arms length

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Open Systems View of Services

Service Process

Consumer departures ( output)

Evaluation

Consumer arrivals (input)

Consumer participant Consumer-Provider interface Control

Criteria Measurement

Monitor
Service personnel

Customer demand

Service operations manager

Perceived needs Location

Production function: Alter Monitor and control process Schedule demand Marketing function: supply Interact with consumers Control demand Modify as necessary Define standard
Service package

Empowerment Training Attitudes

Communicate by advertising

Supporting facility Facilitating goods Explicit services Implicit services

Basis of selection
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Village Volvos Service Package

Supporting Facility Facilitating Goods Information Explicit Services Implicit Services

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Village Volvos Distinctive Service Characteristics

Intangibility Perishability Heterogeneity Simultaneity Customer Participation in the Service Process

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Village Volvos 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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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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Xpresso Lube Facility

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Xpresso Lubes Service Package

Supporting Facility Facilitating Goods

Information
Explicit Services Implicit Services
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Xpresso Lubes Distinctive Service Characteristics

Intangibility Perishability Heterogeneity Simultaneity Customer Participation in the Service Process

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Xpresso Lubes 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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Beyond Xpresso Lube

What elements of Xpresso Lubes 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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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 firms image?
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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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