Chapter 7 SERVICE PRODUCT DEVELOPMENT
Service Product Development is the process of creating, designing, and improving
services to meet customer needs and deliver value. Unlike physical goods, services are
intangible, so development focuses more on experience, quality, and customer
interaction.
Types of New Services
1. Major / Radical Innovations
Completely new services for markets that did not exist before.
They create entirely new demand.
Example: First television broadcasting services (a totally new experience at the time)
👉 Key idea: New service + new market
2. Start-Up Businesses
New companies offering services that already exist in the market.
They compete with existing providers but may offer better quality, price, or convenience.
Example: A new online banking platform competing with existing banks
👉 Key idea: Existing service + New Company
3. New Services for the Currently Served Market
An existing company introduces a new service to its current customers.
The market already exists, and the company already serves it—but the service is new for
that company.
Example: Barnes & Noble adding coffee shops inside bookstores
👉 Key idea: Existing customers + new service from the same company
4. Service Line Extensions
Adding new services to an existing service line.
Expands what the company already offers.
Examples: A restaurant adding new menu items
👉 Key idea: More variety within the same service category
5. Service Improvements
Enhancing existing services by improving their features, quality, or performance.
Focus is on better customer satisfaction.
Examples: Extending service hours
👉 Key idea: Same service, but better
6. Style Changes
The smallest level of innovation
Changes only the appearance or presentation, not the core service
Still important because it affects customer perception and emotions
Examples: Changing logo or brand design or Updating interior design of a hotel or restaurant
👉 Key idea: Looks different, feels new—but works the same
Research suggests that products that are designed and introduced in a structured planning
framework have a greater likelihood of ultimate success than those not developed within a
framework
Characteristics given:
It must be objective and not subjective- based on customer perceptions, market needs &
feasibility
It must be precise and not vague
It must be fact driven and not opinion driven
It must be methodological and not philosophical.
Employees and customers should be involved in the new service development
New Service Development Process
1. Business Strategy Development or Review
This step involves reviewing the company’s overall mission, vision, and long-term goals.
It ensures that any new service fits with the organization’s direction.
🔑 Key Points:
Identify business objectives (growth, profit, market share)
Analyze strengths, weaknesses, opportunities, and threats (SWOT)
Decide the general direction of the business
2. New Service Strategy Development
This step focuses specifically on planning how new services will be developed.
It defines the scope and focus of innovation.
🔑 Key Points:
Decide what types of services to develop
Identify target customers
Set goals for new service development
Allocate resources (budget, staff, technology)
3. Idea Generation
This stage involves creating new service ideas from different sources.
The goal is to generate as many ideas as possible
Methods:
- Interacting with others: _ ideas come from communication and interaction with different
people.
- Creativity techniques
4. Idea Screening (in New Service Development)
Idea screening is the stage where a company evaluates and selects the best ideas from those
generated earlier.
👉 In simple terms:
It is the process of choosing good ideas and rejecting bad ones.
5. Concept Development and Evaluation
This stage comes after idea screening and focuses on turning a selected idea into a clear,
detailed concept and then testing it.
Concept Development
The chosen idea is developed into a well-defined service concept.
It clearly describes:
o What the service is
o How it works
o Who the target customers are
o What benefits it provide
6. Business Analysis is a critical stage in the new service development process where the
organization carefully evaluates whether a proposed service idea is financially viable,
operationally feasible, and strategically worthwhile before committing significant resources to its
development and launch. At this stage, the company conducts a detailed assessment of all
expected costs, including development expenses, operational costs, staffing, technology
requirements, and marketing expenditures, while also forecasting potential revenues based on
estimated demand, pricing strategies, and market size.
Marketing and Financial Assessment
A. Marketing Assessment
Evaluates the market potential of the new service by identifying the target market, estimating
sales volume, determining product positioning, analyzing competitor reactions, and defining
the service specifications.
B. Financial Assessment
Focuses on the financial viability by estimating sales value, calculating variable and fixed
costs, and analyzing the contribution and profitability of the new service.
7. Service Development & Testing
This stage involves creating the actual service and testing it before full market launch. The
company develops a prototype or pilot version and checks how well it performs in real
conditions.
👉 It includes designing the service process, training employees, and ensuring all systems
(technology, delivery, support) work properly. The service is then tested internally or with a
small group of customers to identify problems and make improvements.
7. Market Testing
Market testing is the stage where the new service is introduced to a small, limited market to
evaluate its performance before full launch.
👉 In simple terms:
“Try the service in a small market before launching everywhere.”
Market testing can be difficult in services because they are often hard to test in isolated markets.
For example, a hospital usually has only one location, making it impossible to test the service in
different areas.
To overcome this, organizations use alternative methods. One approach is to offer the new
service to employees and their families to gather initial feedback. Another method is to test
different pricing and promotional strategies by presenting customers with hypothetical
scenarios and measuring their willingness to try the service.
8. Commercialization
Service goes live & is introduced at the market space.
The stage has 2 objectives
- Built & maintain acceptance of new service among large number of service delivery personnel
responsible for service quality.
- Monitor all aspects of service during introduction and through the complete service cycle.
Every detail of the service is assessed. Operating efficiency and costs are tracked
9. Post-Introduction Evaluation
The information gathered during commercialization of service is reviewed and changes
are made in:
Delivery process
Staffing
Service mix
No service will stay same. Services are exposed to deliberate or unplanned changes.
This calls for formalizing the review process to enhance quality and understand customer
perceptions
Factors Contributing to New Service Success
1. Market Synergy
The new service fits well with the company’s existing market and customers
👉 Example: A bank offering mobile banking to its current customers
2. Organizational Factors
The company has the skills, resources, and support needed
👉 Includes: trained staff, technology, management support
3. Market Research Factors
Strong understanding of customer needs and market demand
👉 Based on proper research and data