Services

Management
Introduction

FALL 2006

Why study Services?

• Service-based economies
• Service as a business imperative in
manufacturing and IT
• Deregulated industries and professional
service needs
• Services marketing/management is different
• Service equals profits – follow the money
• It’s where the jobs are!!!

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 Course Logistics
• Website
– [Link]
– PPT files available by 12noon day of class
• eBook will be available in a week
– Chapter copies for now
• Co-Production in action!!

Course Logistics
• Website
– [Link]
– PPT files available by 12noon day of class
• eBook will be available in a week
– Chapter copies for now
• Co-Production in action!!

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 Introduction to Services
• Explain what services are and identify important trends in
services.
• Explain the need for special services management concepts
and practices and why the need has developed and is
accelerating.
• Explore the profound impact of technology on service.
• Outline the basic differences between goods and services
and the resulting challenges and opportunities for service
businesses.
• Introduce the services variables and the philosophy of
customer focus, as powerful frameworks and themes for
managing services.

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.

Role of Services in our Economy

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 Percent Service Employment for
Selected Nations

Country 1980 1987 1993 2000

United States 67.1 71.0 74.3 74.2
Canada 67.2 70.8 74.8 74.1
Israel 63.3 66.0 68.0 73.9
Japan 54.5 58.8 59.9 72.7
France 56.9 63.6 66.4 70.8
Italy 48.7 57.7 60.2 62.8
Brazil 46.2 50.0 51.9 56.5
China 13.1 17.8 21.2 40.6

Percent of U.S. Labor Force

by Industry
80
Percent of U.S. Labor Force

70
60
50
40
30
20
10
0  Services
1929 1948 1969 1977 1984 1999  Manufacturing
Year  Mining & Agriculture

Source: Survey of Current Business, April 1998, Table B.8, July 1988, Table 6.6B, and July 1992, Table 6.4C; Eli
Ginzberg and George J. Vojta, “The Service Sector of the U.S. Economy,” Scientific American, 244,3 (1981): 31-39.

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 Percent of U.S. Gross
Domestic
Product by Industry
80
70
60
Percent of GDP

50
40
30
20
10
0  Services
1948 1959 1967 1977 1987 1999  Manufacturing
Year  Mining & Agriculture

Source: Survey of Current Business, August 1996, Table 11, April 1998, Table B.3; Eli Ginzberg and George J.
Vojta, “The Service Sector of the U.S. Economy,” Scientific American, 244,3 (1981): 31-39.

Examples of Service Industries

• Health Care
– hospital, medical practice, dentistry, eye care
• Professional Services
– accounting, legal, architectural
• Financial Services
– banking, investment advising, insurance
• Hospitality
– restaurant, hotel/motel, bed & breakfast
– ski resort, rafting
• Travel
– airline, travel agency, theme park
• Others
– hair styling, pest control, plumbing, lawn maintenance, counseling
services, health club, interior design

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 Contributions of Service Industries
to
U.S. Gross Domestic Product

Source: Inside Sam’s $100 Billion Growth Machine, by David Kirkpatrick, Fortune, June 14, 2004, p 86.

Figure 1.2

Tangibility Spectrum
Salt
 Soft Drinks
 Detergents
 Automobiles
 CosmeticsFast-food
 Outlets
 Intangible
Dominant

Tangible

Dominant Fast-food
Outlets 
Advertising
Agencies

Airlines 
Investment
Management 
Consulting 
Teaching

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 Characteristics of Services
Compared to Goods

Intangibility Heterogeneity

Simultaneous
Production
and Perishability
Consumption

Implications of Intangibility
• Services cannot be inventoried

• Services cannot be easily patented

• Services cannot be readily displayed or

communicated

• Pricing is difficult

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Implications of Heterogeneity
• Service delivery and customer satisfaction
depend on employee and customer actions

• Service quality depends on many uncontrollable

factors

• There is no sure knowledge that the service

delivered matches what was planned and
promoted

Implications of Simultaneous
Production and Consumption
• Customers participate in and affect the transaction

• Customers affect each other

• Employees affect the service outcome

• Decentralization may be essential

• Mass production is difficult

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 Implications of Perishability
• It is difficult to synchronize supply and demand
with services

• Services cannot be returned or resold

Challenges for Services

• Defining and improving quality
• Designing and testing new services
• Communicating and maintaining a consistent image
• Accommodating fluctuating demand
• Motivating and sustaining employee commitment
• Coordinating marketing, operations, and human resource
efforts
• Setting prices
• Finding a balance between standardization versus
personalization
• Ensuring the delivery of consistent quality

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 An Integrated Approach to Service
Management
The Eight Service Components (Variables)
• Product Elements
• Place, Cyberspace, and Time
• Promotion and Education
• Price and Other User Outlays
+ Process
+ Productivity and Quality
+ People
+ Physical Evidence

 Require the Integration of IT, Marketing, Operations, and

Human Resources

Service Variables

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 Example 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 payment In house restaurant
Service plans
Variant Coffee lounge Airport shuttle

The Service Process Matrix

Degree of Interaction and Customization

Low High
Service factory Service shop
* Airlines * Hospitals
Low * Trucking * Auto repair
* Hotels * Other repair services
Degree of labor * Resorts and recreation
Intensity Mass service: Professional service
* Retailing * Doctors
High * Wholesaling * Lawyers
* Schools * Accountants
* Retail aspects of * Architects
commercial banking

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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.

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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 Strategic Service Classification
Nature of the Service Act
Direct Recipient of the Service
Nature of
the Service Ac t People Things
People’s bodies: Physical possessions:

Health care Freight transportation

Passenger transportation Repair and maintenance
Tangible actions Beauty salons Veterinary ca re
Exercise clinics Janitorial services
Restaurants Laundry and dry cleaning
People’s minds: Intangible assets:

Education Banking
Intangible ac tions Broadcasting Legal services
Information services Accounting
Theaters Securities
Museums Insurance

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 Publi c Highway

Long-distance phone calls Restaurant

Theater series tickets Pay phone
Discrete
Transit pass Toll highway
transactions
Sam’s Wholesale Club Movie theater
Airline frequent flyer Public transportation

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 Strategic Service Classification
Customization and Judgment

Extent to Which Service Characteristics Are Customized

High Low
Surgery Preventive health programs
High Taxi services Education (large classes)
Extent to Which
Gourmet restaurant Family restaurant
Personnel Exercise
Judgment in Meeting Telephone service Public transportation
Customer Needs Hotel services Spectator sports
Low Retail banking Movie theater
Cafeteria Institutional food service

Strategic Service Classification

Nature of Demand and Supply
Extent of Demand Fluctuation over Time
Extent to which Supply
Is Constrained Wide Narrow
Insurance
Peak demand can Electricity
Legal services
usually be met withou t Telephone
Banking
a major delay Police emergency
Laundry and dry
Hospital maternity unit
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 Interaction
between Customer and
Service Organization Single site Multiple site
Customer travels to Theater Bus service
service organization Barbershop Fast -food chain

Tax i
Service provide r Mail delivery
Pest control service
travels to customer AAA emergency repairs
Taxi

Transaction is at Credit card company Broadcast network

arm’s length Local TV station Telephone company

Open Systems View of

Services

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 Xpresso Lube Facility

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

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

• Given the example of Xpresso Lube, what

other services could be combined to “add
value” for the customer?

Next Time …
• Read Chapters 1, 2, 3, 5
• Review website
• Questions???

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