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Chapter 02The Nature of Services
McGraw-Hill/IrwinService 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
open-systems view of service. 2-2
Service-Product Bundle
Element Core GoodsExample
Core ServiceExample
Business Custom clothier Business hotel
Core Business suits Room for the night
PeripheralGoods
Garment bag Bath robe
PeripheralService
Deferred payment plans
In house restaurant
Variant Coffee lounge Airport shuttle2-3
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 co-production, concern for customer and employee behavior
2-4
Major differences bet. service and manufacturing companies
Management
Quality
Productivity/Cost
Non-ownership Classification of Services
Type of Service Customer value Examples Management Challenge
Goods rental Obtain temporary right to exclusive use
Vehicles, tools, furniture, equipment
Site selection and maintenance
Place and space rental
Obtain exclusive use of defined portion of a larger space
Hotel room, seat on airplane, storage unit
Housekeeping and achieving economies of scale
Labor and expertise
Hire other people to do a job
Car repair, surgery, management consulting
Expertise is a renewable resource, but time is perishable
Physical facility usage
Gain admission to a facility for a period of time
Theme park, camp ground, physical fitness gym
Queuing and crowd control
Network usage Gain access to participate Electric utility, cell phone, internet
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.
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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.
2-9
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 banking * Architects
2-10
Strategic Service Classification (Nature of the Service Act)
Strategic Service Classification (Nature of the Service Act) Direct Recipient of the ServiceNature of the Service Act People Things People’s bodies: Physical possessions: Health care Freight transportation Passenger transportation Repair and maintenance
Tangible actions Beauty salons Veterinary care Exercise clinics Janitorial services Restaurants Laundry and dry cleaning
People’s minds: Intangible assets: Education Banking
Intangible actions Broadcasting Legal services Information services Accounting Theaters Securities Museums Insurance
2-11
Strategic Service Classification (Relationship with Customers)
Strategic Service Classification (Relationship with Customers) Type of Relationship between Service Organization and Its CustomersNature of Service Delivery “Membership” relationship No formal relationship
Insurance Radio station Telephone subscription Police protection
Continuous delivery Electric Utility Lighthouse
of service Banking Public Highway
Long-distance phone calls Restaurant Theater series tickets Pay phone
Discrete transactions Transit pass Toll highway Wholesale buying club Movie theater Airline frequent flyer Public transportation
2-12
Strategic Service Classification (Customization and Judgment)
Strategic Service Classification (Customization and Judgment) Degree of Customization
Extent to Which Personnel Exercise Judgment inMeeting Customer Needs High Low
Surgery Preventive health programs
High Taxi services Education (large classes) Gourmet restaurant Family restaurant
Telephone service Public transportation Hotel services Spectator sports
Low Retail banking Movie theater
Cafeteria Institutional food service
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Strategic Service Classification (Nature of Demand and Capacity)
Strategic Service Classification (Nature of Demand and Capacity)
Extent of Demand Fluctuation over Time
Extent to Which Demand Exceeds Capacity Wide Narrow
Electricity Insurance
Peak demand can Telephone Legal services
met without a major delay Police emergency Banking
Hospital maternity unit Laundry and dry cleaning
Tax preparation Fast food restaurant
Peak demand regularly Passenger transportation Movie theater
exceeds capacity Hotels and motels Gas station
2-14
Strategic Service Classification (Method of Service Delivery)
Strategic Service Classification (Method of Service Delivery) Availability of Service
OutletsNature of Service Delivery Single site Multiple site
Customer travels to Theater Bus service
service organization Barbershop Fast-food chain
Service firm delivers Taxi Mail delivery
Pest control service AAA emergency repairs
Transaction at Credit card company Broadcast network
arm’s length Local TV station Telephone company
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Open Systems View of Services
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
2-16
Village Volvo’s Service Package
Supporting Facility
Facilitating Goods
Information
Explicit Services
Implicit Services
2-17
Village Volvo’s Distinctive Service Characteristics Intangibility
Perishability
Heterogeneity
Simultaneity
Customer Participation in the Service Process
2-18
Village Volvo’s Service Classification Nature of the service act
Relationship with customers
Customization and judgement
Nature of demand and supply
Method of service delivery
2-19
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?
2-20
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 firm’s image?
2-21
