Chapter 02 The Nature of Services McGraw-Hill/Irwin Service Management: Operations, Strategy, and Information Technology, 6e Copyright © 2008 by The McGraw-Hill Companies, Inc. All Rights Reserved.

Learning Objectives Explain what is meant by a service-product bundle. Identity and critique the five distinctive characteristics of a service operation and explain the implications for managers. Explain how services can be described as customers renting resources. Describe a service using the five dimensions of the service package. Use the service process matrix to classify a service. Explain how a strategic classification of services can be helpful to managers. Explain the role of a service manager from an open- systems view of service. 2-2

Service-Product Bundle ElementCore Goods Example Core Service Example BusinessCustom clothierBusiness hotel CoreBusiness suitsRoom for the night Peripheral Goods Garment bagBath robe Peripheral Service Deferred payment plans In house restaurant VariantCoffee loungeAirport shuttle 2-3

Distinctive Characteristics of Services Simultaneity: opportunities for personal selling, interaction creates customer perceptions of quality Perishability: cannot inventory, opportunity loss of idle capacity, need to match supply with demand Intangibility: creative advertising, no patent protection, importance of reputation Heterogeneity: customer involvement in delivery process results in variability Customer Participation in the Service Process: attention to facility design, opportunities for co- production, concern for customer and employee behavior 2-4

Major differences bet. service and manufacturing companies Management Quality Productivity/Cost

Non-ownership Classification of Services Type of ServiceCustomer valueExamplesManagement Challenge Goods rentalObtain temporary right to exclusive use Vehicles, tools, furniture, equipment Site selection and maintenance Place and space rental Obtain exclusive use of defined portion of a larger space Hotel room, seat on airplane, storage unit Housekeeping and achieving economies of scale Labor and expertise Hire other people to do a job Car repair, surgery, management consulting Expertise is a renewable resource, but time is perishable Physical facility usage Gain admission to a facility for a period of time Theme park, camp ground, physical fitness gym Queuing and crowd control Network usageGain access to participateElectric utility, cell phone, internet Availability and pricing decisions 2-6

Implications of Rental/Usage Paradigm Creates the option of renting a good upon demand rather than purchase. Service often involves selling slices of larger physical entities. Labor and expertise are renewable resources. Time plays a central role in most services. Service pricing should vary with time and availability. 2-7

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. 2-8

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. 2-9

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 2-10

Strategic Service Classification (Nature of the Service Act) Direct Recipient of the Service Nature of the Service Act People Things People’s bodies: Physical possessions: Health care Freight transportation Passenger transportation Repair and maintenance Tangible actions Beauty salons Veterinary care Exercise clinics Janitorial services Restaurants Laundry and dry cleaning People’s minds: Intangible assets: Education Banking Intangible actions Broadcasting Legal services Information services Accounting Theaters Securities Museums Insurance 2-11

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 Public Highway Long-distance phone calls Restaurant Theater series tickets Pay phone Discrete transactions Transit pass Toll highway Wholesale buying club Movie theater Airline frequent flyer Public transportation 2-12

Strategic Service Classification (Customization and Judgment) Degree of Customization Extent to Which Personnel Exercise Judgment in Meeting Customer Needs High Low Surgery Preventive health programs High Taxi services Education (large classes) Gourmet restaurant Family restaurant Telephone service Public transportation Hotel services Spectator sports Low Retail banking Movie theater Cafeteria Institutional food service 2-13

Strategic Service Classification (Nature of Demand and Capacity) Extent of Demand Fluctuation over Time Extent to Which Demand Exceeds Capacity Wide Narrow Electricity Insurance Peak demand can Telephone Legal services met without a major delay Police emergency Banking Hospital maternity unit Laundry and dry cleaning Tax preparation Fast food restaurant Peak demand regularly Passenger transportation Movie theater exceeds capacity Hotels and motels Gas station 2-14

Strategic Service Classification (Method of Service Delivery) Availability of Service Outlets Nature of Service Delivery Single site Multiple site Customer travels to Theater Bus service service organization Barbershop Fast-food chain Service firm delivers Taxi Mail delivery Pest control service AAA emergency repairs Transaction at Credit card company Broadcast network arm’s length Local TV station Telephone company 2-15

Open Systems View of Services Service Process Consumer Evaluation Consumer arrivals Consumer participant departures Criteria (input) Consumer-Provider ( output) Measurement interface Control Monitor Customer demand Service operations manager Service personnel Production function: Perceived needs Alter Monitor and control process Schedule Empowerment Location demand Marketing function: supply Training Interact with consumers Attitudes Control demand Modify as necessary Define standard Service package Supporting facility Communicate Facilitating goods Basis of by advertising Explicit services selection Implicit services 2-16

Village Volvo’s Service Package Supporting Facility Facilitating Goods Information Explicit Services Implicit Services 2-17

Village Volvo’s Distinctive Service Characteristics Intangibility Perishability Heterogeneity Simultaneity Customer Participation in the Service Process 2-18

Village Volvo’s Service Classification Nature of the service act Relationship with customers Customization and judgement Nature of demand and supply Method of service delivery 2-19

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? 2-20

Topics for Discussion What are the characteristics of services that will be most appropriate for Internet delivery? When does collecting information through service membership become an invasion of privacy? What are some management problems associated with allowing service employees to exercise judgement in meeting customer needs? Illustrate the “distinctive characteristics of service operations” for a service with which you are familiar. What factors are important for a manager to consider when attempting to enhance a service firm’s image? 2-21