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The Nature of Services

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………………………….

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 aspects of * Architects

commercial banking

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.

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.

From pure to quasi-manufacturing From pure to quasi-manufacturing servicesservices

Pure service: Pure service: high contacthigh contact Mixed service: Mixed service: medium contact (front-medium contact (front-

office)office) Quasi-manufacturing:Quasi-manufacturing: low contact low contact

(boundary functions and technical core)(boundary functions and technical core) Degree of contact influences time of Degree of contact influences time of

demand and the exact nature of the demand and the exact nature of the serviceservice

Degree of contact and management Degree of contact and management decisionsdecisions

HighHigh LocationLocation: : near near

customercustomer Layout:Layout: customer customer

physical, psychological physical, psychological needs and expectationsneeds and expectations

Product Design:Product Design: environment as well as environment as well as physical productphysical product

LowLow Near supply, Near supply,

transport, labortransport, labor Enhance productionEnhance production

Product defined by Product defined by fewer attributesfewer attributes

Degree of contact and management Degree of contact and management decisions (cont)decisions (cont)

HighHigh Process design:Process design:

stages have direct, stages have direct, immediate effectimmediate effect

Scheduling:Scheduling: customer customer is in the schedule, is in the schedule, immediate serviceimmediate service

Production planning:Production planning: orders cannot be orders cannot be storedstored

LowLow Customer not Customer not

involved in majority involved in majority of stepsof steps

Customer Customer concerned with concerned with completion datescompletion dates

Backlogging and Backlogging and smoothing are smoothing are possiblepossible


HighHigh Worker skills:Worker skills: PR PR Quality:Quality: variable variable

standards and standards and expectationsexpectations

Time standards:Time standards: depends on customer depends on customer needs, looseneeds, loose

LowLow Technical skillsTechnical skills Standards Standards

measurable and measurable and fixedfixed

Time can be knownTime can be known


HighHigh Wages:Wages: variable o/p, variable o/p,

time based wage time based wage systemssystems

Capacity Planning:Capacity Planning: meet peak demandmeet peak demand

Forecasting: Forecasting: short-short-term, time orientedterm, time oriented

LowLow Fixed o/p, output Fixed o/p, output

based wage based wage systemssystems

Storable output, Storable output, average demandaverage demand

Long term, o/p Long term, o/p orientedoriented

http://www.businessweek.com/2000/00_43/b3704001.htm


HC systems have more uncertainty in HC systems have more uncertainty in day to day operationsday to day operations

It is only by chance that capacity will It is only by chance that capacity will match demandmatch demand

Workforce is a signficant PR componentWorkforce is a signficant PR component HC systems are at the mercy of timeHC systems are at the mercy of time


Implications for managementImplications for management Rationalization is difficult: many factors Rationalization is difficult: many factors

affect the ultimate quality of the service affect the ultimate quality of the service experienceexperience

Distinction should be made between Distinction should be made between high and low contact elementshigh and low contact elements

Development of 2 types of worker skillsDevelopment of 2 types of worker skills

Unique Characteristics of Services Customer presence: uncertainty on service

time, workforce needed, quality of service and operating costs.• Attention to facility design and layout

• Routing the customer through the service system

• Employee job design

• Customer job design– customer expects faster and cheaper service– manager employs customer to acieve higher capacity

utilisation

Unique Characteristics of Services

Intangibility:• Customer doesn’t know what level of

service s/he will be getting (only minimum levels may be guaranteed through registration, licencing, regulations)

• Management must identify particular needs and use creative advertising to emphasise abstract benefits

• Importance of reputation


No patent protection: short life cycles for innovations; quick response to competitive pressure• Capture market share as quickly as possible• Clear definition of service package,

geographic area covered, standard facility design, trademarks to define uniqueness

• Barriers to entry

Unique Characteristics of Services Simultaneity: non-inventoriable output

• Inability to absorb fluctuations in demand– Manufacturing inventory decouples operations

– Services decoupling is through customer waiting

– Inventory control – queue control

• Capacity, facility utilisation, idle time balanced against customer waiting time

– Capacity surrogate to inventory

– Cost of idle capacity – inventory holding cost

– Lack of capacity – stock out


Simultaneity (cont)• Interaction creates customer perceptions of

quality; eliminates opportunites for QC– Limit discretion of employees– Standardised procedures

• Limited geographic area• Opportunities for promotional strategies,

personal selling


Time-dependant demand: customer demand and arrival patterns difficult to forecast (cyclical, seasonal)• Perishability of demand: cannot inventory, opportunity

loss of idle capacity, need to match supply with demand

• Strategies to cope with variability:– Automation (affects pricing, service time,market positioning,

maintenance, layout, workforce), Overlapping shifts, Price incentives, Reservations and appointments, Customer self-service


Heterogeneity: variability in output • Due to customer presence and intangibility• Difficult to establish and meet standards each

time• Training employees (Hamburger University)• Field inspection


Difficulty in measuring output (number of customers) and evaluating performance (maximizing profit)

Labor intensiveness• Customer/worker interface – marketing/production

interface• Direct worker affects perceived value of service

– Production as well as marketing skills– Worker scheduling, training, incentives


Site and size dictated by customer• Limited economies of scale• Control of decentralised operations (multi-site

management)– Standardise service package– Extra layers of management– Automate back room operations

Resilence to economic cycles: recession proof?


International transportability• Legal restrictions• Advertisability• Adequate channels of distribution• Cultural, social norms• Political stability• Distance• Language

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 an Enabler for Both Internal and

External Customers

Strategic Service Classification (Nature of the Service Act)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 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

Different forms of delivery or substitutes? DVD, online courses, ATMDifferent forms of delivery or substitutes? DVD, online courses, ATM

affect: location, facility design, business hoursaffect: location, facility design, business hours

Strategic Service Classification (Relationship with Customers)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

Strengthen membership relation? Shop & miles, OGSStrengthen membership relation? Shop & miles, OGS

Membership affects competitive advantage (knowing the customer), customer loyalty (frequent flyer awards)Membership affects competitive advantage (knowing the customer), customer loyalty (frequent flyer awards)

Strategic Service Classification (Customization and Judgment)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

More customization? Multiple screens in cinema, no ketchup in burgerMore customization? Multiple screens in cinema, no ketchup in burger

Which quadrant is a strategic choice and affects service delivery systemWhich quadrant is a strategic choice and affects service delivery system

Strategic Service Classification (Nature of Demand and Supply)Strategic Service Classification (Nature of Demand and Supply)

Extent of Demand Fluctuation over Time

Extent to which Supply

Is Constrained Wide 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

How to manage demand? How to control supply? Nature of fluctuation, causeHow to manage demand? How to control supply? Nature of fluctuation, cause

Strategic Service Classification (Method of Service Delivery)Strategic Service Classification (Method of Service Delivery)

Availability of Service Outlets

Nature of Interaction

between Customer and

Service Organization Single 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)

IT/IS more customized service, efficient,

Affects location, quality, consistency

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 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

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?

What factors are important for a manager to consider when attempting to enhance a service firm’s image?

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