MBA 570 Summer 2011

 Understanding the managerial implications of the distinctive characteristics of a service operation.  Describing a service using the four dimensions of the service package.  Insights gained from strategic classifications of services.  Challenges for management of service enterprises.

 Intangibility: creative advertising, no patient protection, importance of reputation  Perishability: cannot inventory, opportunity loss of idle capacity, need to match supply with demand  Heterogeneity: customer participation in delivery process results in variability  Simultaneity: opportunities for personal selling, interaction creates customer perceptions of quality  Site Location: dictated by your customers  Customer Participation in the Service Process: attention to facility design but opportunities for co-production  Difficulty in measuring quality of output:

Business services Public administration Infrastructure services Trade services Extractive sector Manufacturing sector Customer Social/personal services

Global Employment, % Share

Percent Employment in Service Jobs, by Nation,

Growth In Employment Global Private Sector Services, , %

Services as % of GDP

Why Services Are Important l Increased Competition l Manufacturing Support l Makes Economic Sense

“When the quality and price of competing products are similar or nearly identical, service activities can ‘differentiate’ undifferentiated products in the mind of the customer” Glaskowsky et al.

Relative Importance of Service Activities Relative Importance of Marketing Variables Product Price Service Sales Effort TOTAL All Industries All Manufacturing Chemicals & Plastics Mfg. Food Mfg Electronics Mfg. Paper Mfg. All Other Manufacturing All Merchandising Consumer Goods Merchandising Industrial Goods Merchandising National Council of Physical Distribution Management

Product Concept Product Design Product Delivery Service Concept Service Design Service Delivery

Suppliers Tier 2 Suppliers Tier 1 Manufacturing Inbound Logistics Operations Outbound Logistics C U S T O M E R S Distributors Retailers The Supply Chain Information

Manufacturin g Service Intermediary Commercial Services User (Self-Service) Consumer (Self- Service) R & D Product Design Distribution Services Wholesaling Retailing Repairing Service Industries Communications, Transportation, Utilities, Health Care, Banking, etc. Private Business Services Supporting Manufacturing, Accounting, Legal, Consulting, Software, Maintenance Government Support Services Waste Disposal Services, Road Maintenance, Education, Health Support, Standards, Police and Fire Protection, etc. Services Inside the Company-- Design, Legal, Accounting Advertising, etc.

The Service Revolution “There are no such things as service industries. There are only industries whose service components are greater or less then those of other industries. Everybody is in service” Theodore Levitt

 Reduced operating expenses  Competitive differentiation  Increased quality  Increased efficiency  Increased responsiveness  Increased market Share  Increased customer loyalty

Contributors to Market Share Market Share Time Market Share Due to Product Features Market Share Due to Captive Markets Market Share Due to Service Activities

Goods Services 100% % Self-service gasoline……………. Personal computer…………… Office copier…………………. Fast-food restaurant………… Gourmet restaurant………… Auto repair…………………… Airline flight……………………. Haircut………………………….

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 aspects of * Architects commercial banking

 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 purchased or consumed by the buyer or items provided by the consumer. Examples are food items, auto parts, legal documents, golf clubs.

 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.

Customer A Customer B Bundle of Service Benefits Received By Customer A Inanimate Environment Contact Personnel or Service Provider VisibleInvisible Organization And System

 Each customer contact is called a moment of truth.  You have the ability to either satisfy or dissatisfy them when you contact them.  A service recovery is satisfying a previously dissatisfied customer and making them a loyal customer.

Cycle of Service Begin Service Encounter End Service Encounter = MOT

 Customer as Coproducer  Front and Back Office Perspectives  Service Profit Chain Focus on Internal and External Customers  Quality (perceptions vs expectations)  Focus on Both Efficiency and Effectiveness  Use IT as Productivity Enabler for Both Internal and External Customers

 Degree of Customer Contact Influences Potential Efficiency of Service  Separate High- and Low-Contact Operations  Consider Sales Opportunity and Production Efficiency Tradeoff

Servicescapes Designing Physical Surroundings to Affect Employee and Customer Behavior u Ambient Conditions: background characteristics such as noise level, music, lighting, temperature, and scent. u Spatial Layout and Functionality: reception area, circulation paths of employees and customers, and focal points. u Signs, Symbols, and Artifacts: selection, orientation, location, and size of objects.

Service Profit Chain Internal quality drives employee satisfaction Employee satisfaction drives retention and productivity Employee retention and productivity drives service value. Service value drives customer satisfaction. Customer satisfaction drives customer loyalty. Customer loyalty drives profitability and growth.

Internal Service Quality Employee Satisfaction Employee Retention Employee Productivity External Service Value Customer Satisfaction Customer Loyalty Revenue Growth Profitability workplace design job design employee selection and development employee rewards and recognition tools for serving customers Service concept: results for customers service designed and delivered to meet targeted customers' needs retention repeat business referral Operating Strategy and Service Delivery System The Links in the Service-Profit Chain

 Careful employee and customer selection  High-quality training  Well-designed support systems  Greater latitude to meet customer’s needs  Clear limits on expectations of employees  Appropriate rewards and recognition  Satisfied employees  Employee referrals of job candidates