CHAPTER 2 PART 1
Service industries are everywhere:
A service is any act or performance that one party can offer to another that is essential intangible and does
not result in owner ship of anything. Its production may or may not be tied a physical product.
Manufactures, distributors, and retailers can provide value added service or simply excellent customer
service to differentiate themselves.
Categories of service mix:
A company’s offering often include some services: the service component can be a minor
or major part of total offering. Five categories of offering can be distinguished:
1. Pure tangible good-The offering consists primarily of a tangible good such as
soap,toothpaste or salt.No services accompany the product.
2. Tangible good with accompanying services-The offering consists of a tangible good
accompanied by one or more services. In this sense,General Motors is probably more
service intensive than manufacturing intensive.Without its services,its sales would
shrivel
3. Major service with accompanying minor goods and services-The offering consists of a
major service along with additional services or supporting goods. For example, airline
passengers buy transportation. The trip includes some tangibles, such as food and drinks,
a ticket stub, and an airline magazine. The service requires a capital-intensive good-an
airplane-for its realization, but the primary item is a service.
5. Pure services-The offering consists primarily of a service. Example include babysitting, psychotherapy, and massage.
Distinctive Characteristics of Services
1. Intangibility-Unlike physical products, services can not be seen, tasted, felt, heard or
smelled before they are bought. The person getting a facelift can not see the results before
the purchase and the patient in the psychiatrist’s office cannot know the exact outcome.
To reduce uncertainty, buyers will look for evidence of quality. Therefore the service
provider’s task is to “manage the evidence”, to “tangibles the intangible.” The provider can try to increase
the tangibility of services. For example, by displaying a plastic or a clay model showing patients an
expected state after a plastic surgery.
Not all the service product has similar intangibility. Some services are highly intangible, while the others
are low i.e. the goods (or the tangible component) in the service product may vary from low to high.
For example: Teaching, Consulting, Legal advices are services which have almost nil tangible
components; While restaurants, fast food centers, hotels and hospitals offer services in which their
services are combined with product (tangible objective) , such as food in restaurants, or medicines in
hospitals etc.
Inseparability
Services are typically produced and consumed simultaneously. Incase of physical goods, they are
manufactured into products, distributed through multiple resellers, and consumed later. But, incase of
services, it cannot be separated from the service provider. Thus, the service provider would become a part
of a service.This is not true of physical goods, which are manufactured, put into inventory, distributed
through multiple resellers, and consumed later. If a person renders the service, then the provider is part of
the service.
Variability
Because services depended on who provides them and when and where they are provided, they are highly
variable. Some doctors have an excellent bedside manner; others are less patient with their patients. Some
surgeons are very successful in performing a certain operation; others are not .Service buyers are aware of
this variability and often talk to others before selecting a service provider. How can you increase the
quality control?
Invest in good hiring and training procedures-Recruiting the right♣ employees and
providing them with excellent training is crucial, regardless of whether employees are
highly skilled professionals or low skilled works
Standardize the service-performance process through out the♣ organization-This is done
by preparing a service blueprint that depicts events and processes in a flowchart, with the
objective of recognizing potential fail points.
Monitor Customer satisfaction-Employ suggestion and complaint♣ systems, customer
surveys, and comparison shopping. Firms can also develop customer information
databases and systems to permit more personalized, customized service.
Perishability
Services can not be stored. Perish ability is not a problem when demand
is steady. When demand fluctuates, service firms have problems. The services go waste if they are not
consumed simultaneously i.e. value of service exists at the point when it is required.
Hence, service quality level deteriorates during peak hours in restaurants, banks, transportation etc. This
is a challenge for a service marketer. Therefore, a marketer should effectively utilize the capacity without
deteriorating the quality to meet the demand.
Demand side
♣ Differential Pricing will shift some demand from peak to off-peak periods. Example
includes low early evening movie prices.
♣ Non peak Demand can be cultivated. McDonald’s pushes breakfast service.
Complementary services can be developed to provide alternatives to♣ waiting
customers, such as cocktail lounges in restaurants.
♣ Reservation systems are a way to manage the demand level. Airlines, hotels employ
them extensively.
Supply sides
♣ Part-time Employees can be hired to serve peak demand .Colleges add part-time
teachers when enrollment goes up.
♣ Peak-time efficiency routines can be introduced. Employees perform only essential
tasks during peak periods.
♣ Increased consumer Participation can be encouraged. Consumers fill out their own
medical records or bag their own groceries.
♣ Shared services can be developed. Several hospitals can share medical-equipment
purchases.
♣ Facilities for future expansion can be developed. An amusement park buys
surrounding land for later development.
A SHORT CASE EXAMPLE
D I S T I N C T I V E C H A R A C T E R I S T I C S CUSTOMER
PARTICIPATION IN THE SERVICE PROCESS
Baskin Robbins is known as the world’s largest chain of ice cream stores. The founders, Burt Baskin and
Irv Robbins, came up with the concept of having one flavor for each day of the month in their ice cream
parlor. Through their innovation and creativity, they led the ice cream industry. Today, Baskin-Robbins
has over 6,000 stores in over 35 countries with 60 years of experience in delivering unique frozen dessert
delights all around the world .In May 2011, Baskin-Robbins opened up its first outlet in Clementi and
subsequently in June 2011, a second outlet in Novena. The ice cream chain tries to adhere to its mission
of being “Your Favorite Neighborhood Ice Cream Store” by setting their outlets in one of Singapore’s
oldest neighborhoods. Baskin Robbins is better known for its generous variety of flavors as it offers over
1,000flavors of ice cream, including Sugar Free, Fat Free and Light choices. Its comprehensive menu also
includes frozen yogurt, sorbets, sherbets, beverages, ice cream cakes and sundaes.
SIMULTANEITY
As services are usually created and consumed simultaneously, they cannot be stored.Therefore,
companies are unable to rely on inventories to deal with fluctuations in demand.Baskin Robbins, as a
service company, does not have an inventory to deal with changes in customers’ demand for its services.
The only way decoupling can be achieved is through waiting or queuing. While simpler orders such as a
single scoop of Chocolate Chip ice cream would be easy and take less time to fulfill, a complex order
such as a Classic Banana Split might take a longer time to make. Also, during the weekends or at peak
hours, Baskin Robbins might see an increase in the number of customers. These might result in a queue,
causing customers to wait in line to have their orders taken. Dine-in customers, who order items that take
a longer time to make, are allowed to wait at their tables. Once their item is ready, it will be sent to them.
This way, Baskin Robbins can reduce the queue and provide the most efficient service to its best
capabilities.
PERISHABILITY
A service is perishable and cannot be stored. Fluctuations in customer demand, along with the
perishability of services, make it important for services to manage their capacity in order to fully utilize
it.At Baskin Robbins, the weekends and peak periods such as dinnertime might bring about an increase in
the number of customers and demand for its services. To deal with this,Baskin Robbins, hires part-timers
and schedules them to work shifts to match the workforce needs according to the demand. This increases
the service capacity and allows Baskin Robbins to efficiently cope with the increase in demand. Baskin
Robbins also allows dine-in customers to wait at the comfort of their tables to smooth demand. Once the
customer’s orders are ready, the staff will send them to their table.
INTANGIBILITY
Baskin Robbins has secured the benefits of a service operation through franchising its firm to preempt any
competitors as well as expand the company. The company started out in the US and then expanded to
other states followed by various countries around the world. Over the years, Baskin-Robbins developed
over 1000 ice cream flavors along with other novelties like milk shakes, smoothies, cakes, and has opened
6000 stores in 352countries. Through franchising, Baskin Robbins can sell its service concept and idea to
its local entrepreneur, thus preserving capital while retaining control and reducing risk. The intangible
nature of services leads to an ambiguity in the standard of the service operation. Baskin Robbins must rely
on its reputation of its service to promote its business. Its reputation can be secured in forms such as
registration, licensing, and regulation by the government. Examples of such guaranteed acceptable
service performance are the Food Shop license that Baskin Robbins has to acquire before setting up a
store in Singapore and re-new its license annually. These measures will assure consumers that the training
and test performance of BaskinRobbins meet certain standards.
HETEROGENEITY
The customer participation in the service delivery system results in the variation of service from customer
to customer. At Baskin Robbins the customer participates through giving the order for their ice cream.
The customer can have the choice of 35 different flavours of ice cream and may choose to have special
orders of different toppings such as chocolate rice, peaches and strawberries. Depending on the customercontact service, the resulting output would differ accordingly. Baskin Robbins also uses automated
machinery in order to standardize the quality of its outputs. Examples of such machinery would be the ice
cream freezer and mixer to attain a sufficiently firm consistency. The automated dispenser that is used to
dispense sundaes and create its signature shape is also standardized throughout its 6000 outlets
worldwide. The development of standards and training of employees in Baskin Robbins before they are
work at the outlets also contribute as a factor for ensuring consistency of service among all customers. It
is imperative that all customers receive fair and equal standards of service. Aside from that Baskin
Robbins also has included in a ‘Guest Satisfaction Survey’ on its website which explores the customer’s
satisfaction of the service at the ice cream parlor and uses it as an indicator for their performance. This is
a measure used by the firm to maintain quality control - through feedback from its patrons
Try to give a service as an example to illustrate four characteristic of services, which are intangibility,
inseparability, heterogeneity, and perishability.
Service Package
Service managers have difficulty describing their product. The problem is partly due to the
intangible nature of services, but the presence of consumer in that process that creates a concern
for the total service experience.
The service package is defined as the bundle of goods and services with information that is
provided in some environment.
It is important that the service manager offer a total experience for the customer that is consistent
with the desired service package
This bundle consists of the following five features:
1) Supporting facility: The physical resources that must be In place before a service can be offered
(Location, Decoration, Supporting equipment, facility layout, and architectural appropriateness)
2) Facilitation goods: The material purchased or consumed by the buyer, or the items provided by the
customer (Consistency, Quantity, Selection)
3) Information: Operation data that is provide by the customer to enable efficient and customers services
(Accurate, Timely, Useful)
4) Explicit Service: the benefits that are readily observable by the sense and that consist of essential or
intrinsic features of the service (Training, Consistency and Availability)
5) Implicit services: Psychological benefits that they customer may sense only vaguely, or the extrinsic
features of the service (Attitude, Atmosphere, Waiting, Status, Sense of well being, Privacy,
Convenience, and Security)
CLASS DISCUSSION
DESIGN A SERVICE PACKAGE FOR
1) A BUDGET HOTEL
2) A HYPERMART
3) AIR ASIA
Service Process Matrix
The Service Process Matrix is a classification matrix of service industry firms based on the characteristics
of the individual firm's service processes. The matrix was derived by Roger Schmenner and first appeared
in 1986.. The Service Process Matrix can be useful when investigating the strategic changes in service
operations. In addition, there are unique managerial challenges associated with each quadrant of the
matrix. By paying close attention to the challenges associated with their related classification, service
firms may improve their performance.
The classification characteristics include the degree of labor intensity and a jointly measured degree of
customer interaction and customization. A high labor intensity business involves relatively small plant
and equipment investment relative to a considerable amount of worker time, effort, and cost/
Labor intensity can be defined as the ratio of labor cost to plant and equipment. A firm whose product, or
in this case service, requires a high content of time and effort with comparatively little plant and
equipment cost would be said to be labor intense.
Customer interaction represents the degree to which the customer can intervene in the service process. For
example, a high degree of interaction would imply that the customer can demand more or less of some
aspects of the service. A service with a high level of interaction is one in which the customer can actively
intervene in the service process. A service with high customization will work to satisfy an individual's
particular preferences. Customization refers to the need and ability to alter the service in order to satisfy
the individual customer's particular preferences.
The vertical axis on the matrix, as shown in Figure 1, is a continuum with a high degree of labor intensity
on one end (bottom) and a low degree of labor intensity on the other end (top).
The horizontal axis is a continuum with a high degree of customer interaction and customization on one
end (right) and a low degree of customer interaction and customization on the other end (left). high degree
of interaction would imply that the customer can demand more or less of some aspects of the service
Service Factory. Services with both low customer contact/customization and a low degree of labor intensity
are classified as Service Factories. Similar to line type processes in manufacturing, the facilities and equipment
account for a large fraction of costs. Much of the transportation industry (airlines, trucking companies), hotels
and fast-food establishments can be classified as Service Factories because of low customer contact,
customization and low labor intensity.
Service Shop. Services with low labor intensity but high customer contact/ customization are classified as
Service Shops. Similar to a Job-Shop type of operation in manufacturing industry, Service Shops can provide
various types of customized services for their customers. Hospitals, auto and other repair services are excellent
examples of Service Shops.
Mass Service. Mass Services have low customer contact/customization in combination with high labor
intensity. Retail companies, wholesaling and schools are examples of Mass Service.
Professional Service. These services have both high customer contact/ customization and a high degree of
labor intensity. Services provided by doctors, lawyers, accountant and architect all have a very high labor costs
due to the large amount of education associated with these professions. In addition, these services tend to be
highly customized according to the particular situation/need of each customer.

Service factory
low degree of customization, low degree of labor intensity

Service shop
high degree of customization, low degree of labor intensity

Mass service
low degree of customization, high degree of labor intensity

Professional service
high degree of customization, high degree of labor intensity