The Nature of Services

This presentation is a modified

version of the original presentation
Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved.
McGraw-Hill/Irwin
Learning Objectives

 Classify a service into one of four categories using the

service process matrix.
 Describe a service using the four dimensions of the
service package.
 Discuss the managerial implications of the distinctive
characteristics of a service operation.
 Discuss the insights obtained from a strategic
classification of services.
2
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 In house restaurant
Service payment plans
Variant Coffee lounge Airport shuttle 3
Roadmap

 The Service Process Matrix

 Service Package
 Distinctive Characteristics of Service
Operations
 Classification of services for strategic insight

4
The Service Process Matrix
Service Process Matrix
 Services are classified across two
dimensions that significantly affect the
service delivery process.

 Degree of Labor Intensity

 Ratio of labor cost to capital cost.
(Labor Intensive (High) and Capital Intensive (Low))

 Degree of Customer Interaction and

Customization

6
The Service Process Matrix
Degree of labor Degree of Interaction and Customization
Intensity
Low High
Service factory: Service shop:

Low * Airlines * Hospitals

* Hotels * Auto repair

Mass service: Professional service:

High * Retailing * Doctors
* Schools * Architects

Managers of services in any category share similar challenges.

7
There are some differences as well.
The Service Process
Matrix
What are some of the issues of
concern for each category identified
in the Service Process Matrix?

(Please take a moment and think

about this)
The Service Package
The Service Package

 Supporting Facility
 Facilitating Goods
 Information
 Explicit Services
 Implicit Services

10
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. 11
The Service Package

 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.

12
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. 13
Distinctive Characteristics of Services
 Distinctive Characteristics of Services
 Inputs
 Customers themselves

 Resources
 Facilitating goods
 Employees
 Capital at the command of the service manager

Banking – focus is on processing information instead of people

• IT such as electronic funds transfer can be substituted for
physically depositing a payroll check
• Presence of the customer is unnecessary. 15
 Customer Participation in the Service
 Attention to facility – Web Portal feel

 Process Simultaneity
 Created and consumed simultaneously.
Cannot be stored
Distinctive
 Perishability Characteristics
 Unused capacity is lost of Services
 Intangibility
 Services are ideas and concepts. Not
patentable. Perceptions
 Heterogeneity
16
 Variation of service from customer to customer
Distinctive Characteristics of Services

 Customer Participation in the Service Process: attention to

facility design but opportunities for co-production
 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 participation in delivery process
results in variability 17
Strategic Service Classification
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

19
 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

Continuous Telephone subscription Police protection
delivery Electric Utility Lighthouse
of service Banking Public 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
20
 Strategic Service Classification
(Customization and Judgment)

Extent to Which Service Characteristics Are Customized

Extent to Which
Personnel Exercise
Judgment in Meeting
Customer Needs High Low
Preventive health
Surgery
High programs
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
21
Strategic Service Classification
(Nature of Demand and Supply)

Extent of Demand Fluctuation over Time

Extent to which Supply
Is Constrained Wide Narrow
Electricity Insurance
Peak demand can
Telephone Legal services
usually be met without
Police emergency Banking
a major delay
Hospital maternity Laundry and dry
unit cleaning
Tax preparation
Fast food restaurant
Peak demand regularly Passenger
Movie theater
exceeds capacity transportation
Gas station
Hotels and motels
22
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
Taxi Mail delivery
Service provider
Pest control service AAA emergency
travels to customer
Taxi repairs
Transaction is at Credit card company Broadcast network
arm’s length Local TV station Telephone company
23
Summary

 The Service Process Matrix

 Service Package
 Distinctive Characteristics of
Service Operations
 Classification of services for
strategic insight

24
Village Volvo’s Service
Package
 Supporting Facility

 Facilitating Goods

 Information

 Explicit Services

 Implicit Services
25
Village Volvo’s Distinctive
Service Characteristics
 Intangibility

 Perishability

 Heterogeneity

 Simultaneity

 Customer Participation in the Service Process

26
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

27
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?

28