MBA 570
Summer 2011
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Intangibility: creative advertising, no patient protection,
importance of reputation
Perishability: cannot inventory, opportunity loss of idle
capacity, need to match supply with demand
Heterogeneity: customer participation in delivery process
results in variability
Simultaneity: opportunities for personal selling,
interaction creates customer perceptions of quality
Site Location: dictated by your customers
Customer Participation in the Service Process: attention to
facility design but opportunities for co-production
Difficulty in measuring quality of output:
Business
services
Extractive
sector
Customer
Infrastructure
services
Public
administration
Trade
services
Social/personal
services
Manufacturing
sector
Global Employment, % Share
90
80
70
60
Farming
50
Services
40
Industry
30
20
10
0
1850 1880 1910 1935 1960 1975 1995 2007
Percent Employment in Service
Jobs, by Nation, 1983-2007
80
Canada
70
US
60
Australia
50
Belgium
40
Israel
France
30
Finland
20
Italy
10
Japan
UK
0
1980
1989
1998
2007
Growth In Employment
Global Private Sector Services, 1980-2007, %
Legal
120
Business
100
Health
Recreat.
80
Hotels
60
Education
Retail
40
Financial
20
Wholesal
Transport
0
19802007
Services as % of GDP
80
70
60
U. S.
50
Canada
Italy
40
U. K.
30
Japan
20
W. Ger.
10
0
1970
1996
2007
Why Services Are Important
Increased Competition
 Manufacturing Support
 Makes Economic Sense
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“When the quality and price of competing
products are similar or nearly identical,
service activities can ‘differentiate’
undifferentiated products in the mind of
the customer”
Glaskowsky et al.
Product
Price
Service
Sales Effort
TOTAL
36
23
23
18
100
38
24
20
18
100
38
26
18
18
100
36
27
15
22
100
48
14
22
16
100
29
26
24
21
100
38
25
22
15
100
30
22
27
21
100
31
23
23
23
100
Industrial Goods
Merchandising
Consumer Goods
Merchandising
All Merchandising
All Other
Manufacturing
Paper Mfg.
Electronics Mfg.
Food Mfg.
Chemicals &
Plastics Mfg.
All Manufacturing
Relative Importance
of Marketing Variables
All Industries
Relative Importance of
Service Activities
28
17
39
16
100
National Council of Physical
Distribution Management
Product
Concept
Service
Concept
Product
Design
Service
Design
Product
Delivery
Service
Delivery
The Supply Chain
Suppliers
Tier 2
Suppliers
Tier 1
Distributors
Manufacturing
Inbound Logistics
Retailers
C
U
S
T
O
M
Operations
E
Outbound Logistics
R
Information
S
Service Industries
Communications, Transportation,
Utilities, Health Care, Banking, etc.
R&D
Product
Design
Manufacturin
g
Services Inside
the
Company-Design,
Legal,
Accounting
Advertising, etc.
Private Business Services
Supporting Manufacturing,
Accounting, Legal, Consulting,
Software, Maintenance
Distribution
Services
Wholesaling
Retailing
Repairing
Service
Intermediary
Government Support Services
Waste Disposal Services, Road Maintenance,
Education, Health Support, Standards,
Police and Fire Protection, etc.
Commercial
Services User
(Self-Service)
Consumer
(SelfService)
The Service Revolution
“There are no such things as service
industries. There are only industries
whose service components are greater
or less then those of other industries.
Everybody is in service”
Theodore Levitt
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Reduced operating expenses
Competitive differentiation
Increased quality
Increased efficiency
Increased responsiveness
Increased market Share
Increased customer loyalty
Contributors to Market Share
Market Share
Due to
Service Activities
Market
Share
Market Share
Due to
Captive Markets
Market Share
Due to
Product Features
Time
Goods
100%
Services
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………………………….
Degree
of labor Intensity
Degree of Interaction and Customization
Low
Service factory:
Low
* Airlines
* Trucking
* Hotels
* Resorts and recreation
Mass service:
High
* Retailing
* Wholesaling
* Schools
* Retail aspects of
commercial banking
High
Service shop:
* Hospitals
* Auto repair
* Other repair services
Professional service:
* Doctors
* Lawyers
* Accountants
* Architects
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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.
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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.
Invisible
Organization
And System
Invisible
Inanimate
Environment
Customer
A
Customer
B
Contact
Personnel
or Service
Provider
Visible
Bundle of Service
Benefits Received
By Customer A
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Each customer contact is called a moment of
truth.
You have the ability to either satisfy or
dissatisfy them when you contact them.
A service recovery is satisfying a previously
dissatisfied customer and making them a
loyal customer.
Begin Service Encounter
End Service Encounter
= MOT
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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 Productivity Enabler for Both
Internal and External Customers
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Degree of Customer Contact Influences
Potential Efficiency of Service
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Separate High- and Low-Contact Operations
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Consider Sales Opportunity and Production
Efficiency Tradeoff
Servicescapes
Designing Physical Surroundings to Affect
Employee and Customer Behavior
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Ambient Conditions: background
characteristics such as noise level, music,
lighting, temperature, and scent.
Spatial Layout and Functionality: reception
area, circulation paths of employees and
customers, and focal points.
Signs, Symbols, and Artifacts: selection,
orientation, location, and size of objects.
Service Profit Chain
• Internal quality drives employee satisfaction
• Employee satisfaction drives retention and
productivity
• Employee retention and productivity drives
service value.
• Service value drives customer satisfaction.
• Customer satisfaction drives customer loyalty.
• Customer loyalty drives profitability and growth.
The Links in the Service-Profit Chain
Operating Strategy and
Service Delivery System
Employee
Retention
Internal
Service
Quality
Employee
Satisfaction
• workplace design
• job design
• employee selection
and development
• employee rewards
and recognition
• tools for serving
customers
Employee
Productivity
External
Service
Value
Customer
Satisfaction
Revenue
Growth
Customer
Loyalty
Profitability
•Service concept:
results for customers
•retention
•repeat business
•referral
•service designed
and delivered to
meet targeted
customers' needs
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Careful employee and customer selection
High-quality training
Well-designed support systems
Greater latitude to meet customer’s needs
Clear limits on expectations of employees
Appropriate rewards and recognition
Satisfied employees
Employee referrals of job candidates