Understanding Services
What do u mean by Services?
An act or performance offered by one party to
another (performances are intangible, but may
involve use of physical products)
An economic activity that does not result in
ownership
A process that creates benefits by facilitating a
desired change in customers themselves,
physical possessions, or intangible assets
The Service Sector
Includes businesses, government agencies,
nonprofits
Jobs range from high-paid professionals and
technicians to minimum-wage positions
Service organizations can be any size--from
huge global corporations to local small
businesses
In most countries, adds more economic value
than agriculture, raw materials and
manufacturing combined
In the USA -- world’s largest economy --
services account for 73% of GDP and 76% of
jobs
Fig. 1.1: GDP by Industry in the USA,
1999
A g r ic u ltu r e , F o r e s tr y,
F is h in g a n d M in in g F in a n c e , In s u r a n c e
7% a n d R e a l Es ta te
20%
M a n u fa c tu r in g
16%
W h o le s a le a n d
G o v e rn m e n t R e ta il Tr a d e
(M o s tly S e rv ic e s ) 17%
12%
O th e r S e r v ic e s S E R V I C E S
10% Tr a n s p o r t, U tilitie s
B u s in e s s a n d C o m m u n ic a tio n s
H e a lth 8%
S e rv ic e s
5%
5%
Changing Structure of Employment
as Economic Development Evolves
Share of
Employment
Agriculture
Services
Industry
Time, per Capita Income
Some Industries in the Service Sector
Banking, stockbroking Health care
Lodging Education
Restaurants, bars, Wholesaling and retailing
catering
Laundries, drycleaning
Insurance
Repair and maintenance
News and entertainment Professional (e.g., law,
Transportation (freight architecture, consulting)
and passenger)
Internal Services
Service elements within an organization that
facilitate creation of--or add value to--its final
output
Includes:
accounting and payroll administration
recruitment and training
legal services
transportation
catering and food services
cleaning and landscaping
Increasingly, these services are being
outsourced
Basic Differences between
Goods and Services
Customers do not obtain ownership of services
Service products are intangible performances--not
objects
Customers often actively involved in production process
Other people may form part of product experience
More variability in operational inputs and outputs--harder
to improve productivity, control quality
Often difficult for customers to evaluate
Absence of inventories after production
Time factor is more important--speed may be key
Delivery systems include electronic and physical
channels
Value Added by Tangible versus
Intangible Elements in Goods and
Services
Hi
Salt
Soft drinks
VCR
Tennis racquet
New car
Tangible Elements
Custom-made clothes
Furniture rental
Fast food restaurant
Plumbing repair
Lawn care
Oil change on car
House cleaning
Airline flight
Teaching
Lo Intangible Elements Investment mgt.
Hi
The “8Ps” of Integrated Service
Management vs. the Traditional “4Ps”
Product elements
Place, cyberspace, and
time
Process
Productivity and quality
People
Promotion and
education
Physical evidence
Price and other user
outlays
8Ps:
(1) Product Elements
All Aspects of Service Performance that Create
Value
Core product features
Bundle of supplementary service elements
Performance levels relative to competition
Benefits delivered to customers
Guarantees
8Ps:
(2) Place, Cyberspace, and Time
Delivery Decisions: Where, When, and How
Geographic locations served
Service schedules
Physical channels
Electronic channels
Customer control and convenience
Channel partners/intermediaries
8Ps:
(3) Process
Method and Sequence in Service Creation and
Delivery
Design of activity flows
Number and sequence of actions for customers
Providers of value chain components
Nature of customer involvement
Role of contact personnel
Role of technology, degree of automation
8Ps:
(4) Productivity and Quality
Synergy in Value Creation for Customers and the
Firm
Achieve productive transformation of inputs to
outputs
efficiency (cost control, avoidance of waste)
effectiveness (value added, including quality and
timeliness)
Attain customer-defined quality standards
reliability
responsiveness
competence/trust
human dimensions
tangibles
8Ps:
(5) People
The Human Side of the Enterprise
The right employees performing tasks well
job design
recruiting/selection
training
motivation
evaluation/rewards
empowerment/teamwork
The right customers for the firm’s mission
fit well with product/processes/corporate goals
appreciate benefits and value offered
possess (or can be educated to have) necessary skills
firm is able to manage customer behavior
8Ps:
(6) Promotion and Education
Informing, Educating, Persuading, and Reminding
Customers
Marketing communication tools
media elements (print, broadcast, outdoor, retail, Internet, etc.)
personal selling, customer service
sales promotion
publicity/PR
Imagery and recognition
branding
corporate design
Content
information, advice
persuasive messages
customer education/training
8Ps:
(7) Physical Evidence
Providing tangible evidence of service
performances
Create and maintaining physical appearances
buildings/landscaping
interior design/furnishings
vehicles/equipment
staff grooming/clothing
other tangibles
Select tangible metaphors for use in marketing
communications
8Ps:
(8) Price and Other User Costs
Managing Customer Outlays Relative to
Corporate Revenues
Quoted price level and trade margins
Discount terms
Price-setting mechanism
determined by seller
negotiation/barter
auction/reverse auction
Credit terms
Strategies to minimize other user costs
out-of-pocket financial expenses (e.g., travel, phone)
time investments and mental/physical effort
negative sensory experiences
Factors Stimulating Competition and
Innovation in the Service Economy
Government Policies (e.g., regulations, trade
agreements)
Social Changes (e.g., affluent, time poor, seek
experiences)
Business Trends
Manufacturers offer service
Growth of chains and franchising
Pressures to improve productivity and quality
More strategic alliances
Marketing emphasis by nonprofits
Innovative hiring practices
Advances in IT (e.g., speed, digitization, wireless,
Internet)
Internationalization (travel, transnational companies)
Some Impacts of Technological Change
Radically alter ways in which service firms do
business:
with customers (new services, more convenience)
behind the scenes (reengineering, new value chains)
Create relational databases about customer
needs and behavior, mine databanks for insights
Leverage employee capabilities and enhance
mobility
Centralize customer service, be faster and more
responsive
Develop national/global delivery systems
Create new, Internet-based business models
The Service Management Decision
Framework
W h a t B u s in e s s A r e W e In ?
W h a t S e r v ic e P r o c e s s e s C a n B e U s e d in W h o A r e O u r C u s to m e r s a n d H o w S h o u ld
O u r O p e ra tio n ? W e R e la te to Th e m ?
W h a t S h o u ld b e th e C o r e a n d S u p p le m e n ta r y
E le m e n ts o f O u r S e rv ic e P ro d u c t?
W h a t P ric e S h o u ld W e C h a rg e H o w S h o u ld W e C o m m u n ic a te W h a t
fo r O u r S e rv ic e s ? O u r S e r v ic e H a s to O ffe r?
W h a t A r e th e O p tio n s fo r D e liv e rin g H o w C a n W e B a la n c e P ro d u c tiv ity
O u r S e r v ic e ? a n d Q u a lity ?
H o w S h o u ld W e M a tc h D e m a n d a n d P r o d u c tiv e C a p a c ity ?
W h a t A r e A p p r o p r ia t e R o le s fo r P e o p le a n d Te c h n o lo g y ?
H o w C a n O u r F ir m A c h ie v e S e r v ic e Le a d e r s h ip ?
Relating the 8Ps to the
Service Decision Framework
W H A T B U S IN E S S A R E W E I N ?
W h a t S e r v ic e P r o c e s s e s C a n B e U s e d in W h o A re O u r C u s to m e rs a n d
O u r O p e r a t io n ? ( P R O C E S S ) H o w S h o u ld W e R e la t e to T h e m ?
W h a t S h o u ld b e t h e C o r e a n d S u p p le m e n ta r y E le m e n t s
o f O u r S e r v ic e P r o d u c t? ( P R O D U C T E LE M E N T S )
W h a t P r ic e S h o u ld W e C h a r g e ? H o w t o C o m m u n ic a te ? ( P R O M O T IO N &
(P R IC E A N D O T H E R U S E R O U TLA Y S ) E D U C A T IO N , P H Y S IC A L E V ID E N C E )
O p tio n s fo r D e liv e r y ? ( P L A C E , C Y B E R S P A C E H o w C a n W e B a la n c e
& T IM E , P H Y S IC A L E V ID E N C E ) P R O D U C T IV IT Y A N D Q U A L IT Y ?
H o w S h o u ld W e M a t c h D e m a n d a n d P r o d u c t iv e C a p a c ity ?
W h a t A r e A p p r o p r ia te R o le s fo r P e o p le a n d Te c h n o lo g y ? ( P E O P L E )
H o w C a n O u r F ir m A c h ie v e S e r v ic e L e a d e r s h ip ?
Service Decision Framework
What Business Are We In?
With what industry is our service
associated?
With what other goods and services do we
compete?
What forces for change do we face?
What solutions do we offer to meet
customer needs? (How do we create
value?)