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Proportion of Goods and Services in Purchase Bundle
Goods Services
100% 75 50 25 0 25 50 75 100%
Self-service gasoline…………….
Personal computer……………
Office copier………………….
Fast-food restaurant…………
Gourmet restaurant…………
Auto repair……………………
Airline flight…………………….
Haircut………………………….
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 aspects of * Architects
commercial banking
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 purchased or consumed by the buyer or items provided by the consumer. Examples are food items, auto parts, legal documents, golf clubs.
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.
From pure to quasi-manufacturing From pure to quasi-manufacturing servicesservices
Pure service: Pure service: high contacthigh contact Mixed service: Mixed service: medium contact (front-medium contact (front-
office)office) Quasi-manufacturing:Quasi-manufacturing: low contact low contact
(boundary functions and technical core)(boundary functions and technical core) Degree of contact influences time of Degree of contact influences time of
demand and the exact nature of the demand and the exact nature of the serviceservice
Degree of contact and management Degree of contact and management decisionsdecisions
HighHigh LocationLocation: : near near
customercustomer Layout:Layout: customer customer
physical, psychological physical, psychological needs and expectationsneeds and expectations
Product Design:Product Design: environment as well as environment as well as physical productphysical product
LowLow Near supply, Near supply,
transport, labortransport, labor Enhance productionEnhance production
Product defined by Product defined by fewer attributesfewer attributes
Degree of contact and management Degree of contact and management decisions (cont)decisions (cont)
HighHigh Process design:Process design:
stages have direct, stages have direct, immediate effectimmediate effect
Scheduling:Scheduling: customer customer is in the schedule, is in the schedule, immediate serviceimmediate service
Production planning:Production planning: orders cannot be orders cannot be storedstored
LowLow Customer not Customer not
involved in majority involved in majority of stepsof steps
Customer Customer concerned with concerned with completion datescompletion dates
Backlogging and Backlogging and smoothing are smoothing are possiblepossible
Degree of contact and management Degree of contact and management decisions (cont)decisions (cont)
HighHigh Worker skills:Worker skills: PR PR Quality:Quality: variable variable
standards and standards and expectationsexpectations
Time standards:Time standards: depends on customer depends on customer needs, looseneeds, loose
LowLow Technical skillsTechnical skills Standards Standards
measurable and measurable and fixedfixed
Time can be knownTime can be known
Degree of contact and management Degree of contact and management decisions (cont)decisions (cont)
HighHigh Wages:Wages: variable o/p, variable o/p,
time based wage time based wage systemssystems
Capacity Planning:Capacity Planning: meet peak demandmeet peak demand
Forecasting: Forecasting: short-short-term, time orientedterm, time oriented
LowLow Fixed o/p, output Fixed o/p, output
based wage based wage systemssystems
Storable output, Storable output, average demandaverage demand
Long term, o/p Long term, o/p orientedoriented
http://www.businessweek.com/2000/00_43/b3704001.htm
Degree of contact and management Degree of contact and management decisions (cont)decisions (cont)
HC systems have more uncertainty in HC systems have more uncertainty in day to day operationsday to day operations
It is only by chance that capacity will It is only by chance that capacity will match demandmatch demand
Workforce is a signficant PR componentWorkforce is a signficant PR component HC systems are at the mercy of timeHC systems are at the mercy of time
Degree of contact and management Degree of contact and management decisions (cont)decisions (cont)
Implications for managementImplications for management Rationalization is difficult: many factors Rationalization is difficult: many factors
affect the ultimate quality of the service affect the ultimate quality of the service experienceexperience
Distinction should be made between Distinction should be made between high and low contact elementshigh and low contact elements
Development of 2 types of worker skillsDevelopment of 2 types of worker skills
Unique Characteristics of Services Customer presence: uncertainty on service
time, workforce needed, quality of service and operating costs.• Attention to facility design and layout
• Routing the customer through the service system
• Employee job design
• Customer job design– customer expects faster and cheaper service– manager employs customer to acieve higher capacity
utilisation
Unique Characteristics of Services
Intangibility:• Customer doesn’t know what level of
service s/he will be getting (only minimum levels may be guaranteed through registration, licencing, regulations)
• Management must identify particular needs and use creative advertising to emphasise abstract benefits
• Importance of reputation
Unique Characteristics of Services
No patent protection: short life cycles for innovations; quick response to competitive pressure• Capture market share as quickly as possible• Clear definition of service package,
geographic area covered, standard facility design, trademarks to define uniqueness
• Barriers to entry
Unique Characteristics of Services Simultaneity: non-inventoriable output
• Inability to absorb fluctuations in demand– Manufacturing inventory decouples operations
– Services decoupling is through customer waiting
– Inventory control – queue control
• Capacity, facility utilisation, idle time balanced against customer waiting time
– Capacity surrogate to inventory
– Cost of idle capacity – inventory holding cost
– Lack of capacity – stock out
Unique Characteristics of Services
Simultaneity (cont)• Interaction creates customer perceptions of
quality; eliminates opportunites for QC– Limit discretion of employees– Standardised procedures
• Limited geographic area• Opportunities for promotional strategies,
personal selling
Unique Characteristics of Services
Time-dependant demand: customer demand and arrival patterns difficult to forecast (cyclical, seasonal)• Perishability of demand: cannot inventory, opportunity
loss of idle capacity, need to match supply with demand
• Strategies to cope with variability:– Automation (affects pricing, service time,market positioning,
maintenance, layout, workforce), Overlapping shifts, Price incentives, Reservations and appointments, Customer self-service
Unique Characteristics of Services
Heterogeneity: variability in output • Due to customer presence and intangibility• Difficult to establish and meet standards each
time• Training employees (Hamburger University)• Field inspection
Unique Characteristics of Services
Difficulty in measuring output (number of customers) and evaluating performance (maximizing profit)
Labor intensiveness• Customer/worker interface – marketing/production
interface• Direct worker affects perceived value of service
– Production as well as marketing skills– Worker scheduling, training, incentives
Unique Characteristics of Services
Site and size dictated by customer• Limited economies of scale• Control of decentralised operations (multi-site
management)– Standardise service package– Extra layers of management– Automate back room operations
Resilence to economic cycles: recession proof?
Unique Characteristics of Services
International transportability• Legal restrictions• Advertisability• Adequate channels of distribution• Cultural, social norms• Political stability• Distance• Language
Service Process Orientation 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 an Enabler for Both Internal and
External Customers
Strategic Service Classification (Nature of the Service Act)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 Equipment repair and maintenance
Tangible actions Beauty salons Veterinary care
Exercise clinics Janitorial services
Restaurants Laundry and dry cleaning
Haircutting Landscaping/lawn care
People’s minds: Intangible assets:
Education Banking
Intangible actions Broadcasting Legal services
Information services Accounting
Theaters Securities
Museums Insurance
Different forms of delivery or substitutes? DVD, online courses, ATMDifferent forms of delivery or substitutes? DVD, online courses, ATM
affect: location, facility design, business hoursaffect: location, facility design, business hours
Strategic Service Classification (Relationship with Customers)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 College enrollment Lighthouse
of service Banking Public Highway
American Automobile association
Long-distance phone calls Restaurant
Theater series subscription Mail service
Discrete transactions Commuter ticket or transit pass Toll highway
Sam’s Wholesale Club Movie theater
Egghead computer software Public transportation
Strengthen membership relation? Shop & miles, OGSStrengthen membership relation? Shop & miles, OGS
Membership affects competitive advantage (knowing the customer), customer loyalty (frequent flyer awards)Membership affects competitive advantage (knowing the customer), customer loyalty (frequent flyer awards)
Strategic Service Classification (Customization and Judgment)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 Professional services Education (large classes)
Surgery Preventive health programs
Taxi services College food service
High Beautician
Plumber
Gourmet restaurant
Telephone service Public transportation
Hotel services Routine appliance repair
Low Retail banking (excl. major loans) Movie theater
Family restaurant Spectator sports
Fast-food restaurant
More customization? Multiple screens in cinema, no ketchup in burgerMore customization? Multiple screens in cinema, no ketchup in burger
Which quadrant is a strategic choice and affects service delivery systemWhich quadrant is a strategic choice and affects service delivery system
Strategic Service Classification (Nature of Demand and Supply)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 Natural gas Legal services
usually be met Telephone Banking
without a major delay Hospital maternity unit Laundry and dry cleaning
Police and fire emergencies
Accounting and tax preparation Services similar to those above
Peak demand regularly Passenger transportation but with insufficient capacity
exceeds capacity Hotels and motels for their base level of
Restaurants business
How to manage demand? How to control supply? Nature of fluctuation, causeHow to manage demand? How to control supply? Nature of fluctuation, cause
Strategic Service Classification (Method of Service Delivery)Strategic Service Classification (Method of Service Delivery)
Availability of Service Outlets
Nature of Interaction
between Customer and
Service Organization Single site Multiple site
Customer goes to Theater Bus service
service organization Barbershop Fast-food chain
Service organization Lawn care service Mail delivery
comes to customer Pest control service AAA emergency repairs
Taxi
Customer and service Credit card company Broadcast network
organization transact at Local TV station Telephone company
arm’s length (mail or
electronic communications)
IT/IS more customized service, efficient,
Affects location, quality, consistency
Open Systems View of Service Operations
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
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?
What factors are important for a manager to consider when attempting to enhance a service firm’s image?