Chapter 1
An Introduction to Services
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WHAT IS A SERVICE?
The Distinction is Unclear:
The Scale of Market Entities
&
The Molecular Model
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WHAT IS A SERVICE?
In General:

Goods  Objects, Devices, Things

Services  Deeds, Efforts, Performances
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THE BENEFIT CONCEPT

Encapsulation of benefits in the consumers
mind
 Tide
 Cleanliness
 Whiteness
 Motherhood
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THE BENEFIT CONCEPT

Services deliver the bundle of benefits
through the experience that is created for
the consumer

The servuction model provides a
framework for understanding the
consumer’s experience
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The Servuction Model
Inanimate
Environment
Invisible
organization
and systems
Invisible
Customer A
Contact
Personnel
Or
Service
Provider
Customer B
Visible
Bundle of service
benefits received
by Customer A
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THE INCREASING DEMAND
FOR SERVICE KNOWLEDGE

Changes in management perspective
 The
Industrial Model vs. The Market-focused
Model
Growth in service sector employment
 Service sector contributions to the world
economy
 Deregulation

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THE DEMAND FOR KNOWLDEGE:
SERVICE SECTOR EMPLOYMENT

Service Sector
Employment:
 78% in United States
 73% in Great Britain
 62% in Japan
 57% in Germany
 90% of All Jobs by
2020

New Job Creation:
 80% of All New Jobs
(1980-1990)
 90% of All New Jobs
(1990-2000)
 88% of All Jobs by
2005
*42% of Work Force is Providing Some Form of Personal Service
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THE DEMAND FOR KNOWLEDGE:
CONTRIBUTIONS TO THE ECONOMY
Economic impact:
 The service sector accounts for over 70% of
the United States’ gross domestic product
(GDP)
 The majority of industries in the U.S.
economy do not produce, they perform

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THE DEMAND FOR KNOWLEDGE:
THE IMPACT OF DEREGULATION
Effect of Deregulations:


No demand for services knowledge when
demand exceeded supply and competitive
pressures were few
Between 1980-1992



U.S. airlines declined from 36 to 12
the number of trucking companies that failed during the
1980s was more than the previous 45 years combined
commercial banks declined by 14%
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THE DEMAND FOR KNOWLEDGE:
THE IMPACT OF DEREGULATION
Effect of Deregulations (continued):
Knowledge is needed in nonprice issues:
 customer
service
 customer retention
 image enhancement
 transforming public contact personnel
into marketing-oriented personnel
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THE INDUSTRIAL MODEL

Sales Revenues are a function of:
 location
Strategies
 sales Promotions
 advertising
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THE INDUSTRIAL MODEL
(continued)

Labor and operating costs should be kept
as low as possible
 better
to rely on machines than humans
 narrowly defined jobs

Leave little room for discretion
 believes
most employees are indifferent,
unskilled, and incapable of completing
complex tasks.
 performance expectations are low
 wages are kept low
 few opportunities for advancement
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THE INDUSTRIAL MODEL
(continued)
Places a higher value on upper and middle
managers
 Replaces full-time personnel with part-time
personnel to reduce costs

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CONSEQUENCES OF
THE INDUSTRIAL MODEL
(employee)
 Guarantees a cycle-of-failure
 Encourages front-line personnel to be
indifferent to problems
 no
opportunity for advancement (dead-end
jobs)
 poor pay

some companies let employees go before mandatory
raises
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CONSEQUENCES OF
THE INDUSTRIAL MODEL
(employee)
poor pay has created a new class of migrant worker
 16 million people now travel from one short-term
job to another

 superficial
training
focuses only on product knowledge
 little, if any, company benefits

Prohibits employees from taking
discretionary action
 High employee turnover rate

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CONSEQUENCES
OF THE INDUSTRIAL MODEL
(customers)
 Customer dissatisfaction
 2/3
of customer’s defect, not due to the product,
but due to the unhelpfulness of the provider
 flat and declining sales revenues

Overall the industrial approach is bad for:
 employees
 customers
 shareholders
 country
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THE MARKET-FOCUSED
MANAGEMENT MODEL
Purpose of the firm is to serve the customer
 Service delivery is the focus of the system
and the overall differential advantage in
terms of competitive advantage
 The services triangle provides a framework
for the services model

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THE SERVICES TRIANGLE
•The company
exists to serve
the customer
The
service
strategy
•The organization
exists to serve the
needs of the people
who serve the
customer
The
customer
The
systems
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The
people
THE SERVICES TRIANGLE
1. Communicate the service strategy to the customer
2. Customer/employee interaction:
 greatest
opportunity for gains and losses
 moments-of-truth
 critical
incidents
3. Customer/procedures & physical hardware

A.T.M. machines

cramped airline seats
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THE SERVICES TRIANGLE
4. Organizational systems may prevent
employees from giving good service
5. Physical and administrative systems
should flow logically from the service
strategy
6. Good service starts at the top
*MGT. should “Walk What They Talk” and provide:
-sense of focus
-clarity
-priorities
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CHARACTERISTICS OF THE
MARKET-FOCUSED MODEL

Believes employees want to do good work
 invests
in people as much as machines
 technology is used to assist people (not to
monitor there every activity)
 data is made available to the front-line
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CHARACTERISTICS OF THE
MARKET-FOCUSED MODEL
(continued)
 Recognizes that employee turnover and
customer satisfaction are closely related
 tie
pay to performance
 focus on selection and training of personnel

Ryder Truck
 no training (41% turnover)
 received training (19% turnover)
 better
trained, provide better service, require
less supervision
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CHARACTERISTICS OF THE
MARKET-FOCUSED MODEL
(continued)
 Employ more full-time employees
 better
for customers and employees
 companies that pay more are finding that as a
percentage of sales, labor costs are actually
lower than industry averages
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