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Chapter 1

An Introduction to Services

WHAT IS A SERVICE?

The Distinction is Unclear:

The Scale of Market Entities
&
The Molecular Model

WHAT IS A SERVICE?

In General:

 Goods  Objects, Devices, Things

 Services 
Deeds, Efforts, Performances

THE BENEFIT CONCEPT

 Encapsulation of benefits in the
consumers mind
 Tide
 Cleanliness
 Whiteness
 Motherhood

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

The Servuction Model

Inanimate Customer A
Environment
Invisible
organization Contact
and systems Personnel
Or
Service Customer B
Provider

Invisible Visible
Bundle of service
benefits received
by Customer A

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

THE DEMAND FOR KNOWLDEGE:
SERVICE SECTOR EMPLOYMENT

 Service Sector  New Job Creation:
Employment:  80% of All New
 78% in United Jobs (1980-1990)
States  90% of All New
 73% in Great Jobs (1990-2000)
Britain  88% of All Jobs by
 62% in Japan 2005
 57% in Germany
 90% of All Jobs by
2020
*42% of Work Force is Providing Some Form of Personal Service

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

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%

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

THE INDUSTRIAL MODEL

 Sales Revenues are a function of:
 location Strategies
 sales Promotions
 advertising

(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

(continued)

 Places a higher value on upper and
middle managers
 Replaces full-time personnel with
part-time personnel to reduce costs

CONSEQUENCES OF
(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

CONSEQUENCES OF
(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

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

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

THE SERVICES TRIANGLE

The
•The company service •The organization
exists to serve strategy exists to serve the
the customer needs of the people
who serve the
customer
The
customer

The The
systems people


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


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

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

(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

(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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