WELCOME TO

SERVICE ECONOMY

THE SERVICE ECONOMY

Chapter 1

McGraw-Hill/Irwin Copyright © 2014 by The McGraw-Hill Companies, Inc. All rights reserved.
Service Definitions
Services are deeds, processes, and
performances.
Valarie Zeithaml & Mary Jo Bitner

A service is a time-perishable, intangible

experience performed for a customer acting in the
role of a co-producer.
James Fitzsimmons

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Definition of Service Firms
Service enterprises are organizations that facilitate the
production and distribution of goods, support other firms in
meeting their goals, and add value to our personal lives.
James Fitzsimmons

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Role of Services in an Economy
FINANCIAL SERVICES
INFRASTRUCTURE SERVICE
· Financing
· Communications
· Leasing · Transportation
· Insurance · Utilities
· Banking

PERSONAL SERVICES
MANUFACTURING · Healthcare
Services inside company: · Restaurants
· Finance DISTRIBUTION · Hotels
· Accounting SERVICES
· Legal · Wholesaling
· R&D and design · Retailing
· Repairing CONSUMER
(Self-service)

BUSINESS SERVICES
· Consulting GOVERNMENT SERVICES
· Auditing · Military
· Advertising · Education
· Waste disposal · Judicial
· Police and fire protection

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Stages of Economic Activity

Quinary (Extending Human Potential):

Health, Education, Research, Arts, Recreation

Quaternary (Trade and Commerce):

Transportation, Communications, Retailing, Finance, Government

Tertiary (Domestic Services): Restaurants, Hotels, Laundry, Maintenance

Secondary (Goods-Producing): Manufacturing, Processing

Primary (Extractive): Agriculture, Mining, Fishing, Forestry

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The Four Realms of an Experience

Customer Participation

Passive Active

Absorption Entertainment Education

Environmental (Movie) (Language)
Relationship Immersion Esthetic Escapist
(Tourist) (ScubaDiving)

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Service Package

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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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Open Systems View of 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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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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Tutorial wk 1
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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 Tutorial
Discussion Topics
• Illustrate how the type of work he or she does influences a person’s
lifestyle. For example, contrast a farmer, a factory worker, and a school
teacher.

• Is it possible for an economy to be based entirely on services?

• What is the value of self-service in an economy?

• What are some management problems associated with allowing service

employees to exercise judgment in meeting customer needs?
• Critique the “Distinctive Characteristics of Service Operations” by
arguing that the characteristics of customer participation, simultaneity,
perishability, intangibility, and heterogeneity may apply to goods as well.

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