The Nature of Services

McGraw-Hill/Irwin Copyright © 2008 by The McGraw-Hill Companies, Inc. All rights reserved.
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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.
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Service-Product Bundle
Element Core Goods Core Service
Example Example
Business Custom clothier Business hotel

Core Business suits Room for the

night
Peripheral Garment bag Bath robe
Goods
Peripheral Deferred In house
Service payment plans restaurant
Variant Coffee lounge Airport shuttle
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Distinctive Characteristics of Services

 Simultaneity: Perishability: cannot

opportunities for inventory, opportunity
personal selling, loss of idle capacity,
interaction creates need to match supply
customer perceptions with demand
of quality
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Distinctive Characteristics of Services

 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
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Non-ownership Classification
of Services
Type of Service Customer value Examples Management Challenge

Goods rental Obtain temporary right to Vehicles, tools, furniture, Site selection and
exclusive use equipment maintenance

Place and space Obtain exclusive use of Hotel room, seat on Housekeeping and achieving
rental defined portion of a airplane, storage unit economies of scale
larger space

Labor and expertise Hire other people to do a Car repair, surgery, Expertise is a renewable
job management resource, but time is
consulting perishable

Physical facility Gain admission to a facility Theme park, camp ground, Queuing and crowd control
usage for a period of time physical fitness gym

Network usage Gain access to participate Electric utility, cell phone, Availability and pricing
internet 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 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
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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 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
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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 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
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Strategic Service Classification

(Customization and Judgment)
Degree of Customization
Extent to Which Personnel
Exercise Judgment in
Meeting 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)

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
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Strategic Service Classification

(Method of Service Delivery)
Availability of Service Outlets
Nature 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
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Village Volvo’s Service Package

 Supporting Facility

 Facilitating Goods

 Information

 Explicit Services

 Implicit Services
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Village Volvo’s Distinctive

Service Characteristics
 Intangibility

 Perishability

 Heterogeneity

 Simultaneity

 Customer Participation in the Service Process

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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

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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 Lube’s Service

Package
 Supporting Facility

 Facilitating Goods

 Information

 Explicit Services

 Implicit Services
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Xpresso Lube’s Distinctive

Service Characteristics
 Intangibility

 Perishability

 Heterogeneity

 Simultaneity

 Customer Participation in the Service Process

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Xpresso Lube’s 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 Lube’s

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 firm’s 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.