Class 1
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The service sector accounts for over half of the GDP and is one of the fastest growing sectors, dominated by jobs, talent, and incomes. Services are intangible acts or performances that are generally produced and consumed simultaneously by customers who may participate in the process. There are various frameworks for classifying services based on factors such as the degree of customer contact or labor intensity and customization.
Class 1
- 2. The service sector The services sector has been growing at a rate of 8% per annum in recent years More than half of our GDP is accounted for from the services sector This sector dominates with the best jobs, best talent and best incomes
- 3. “There are no such thing as service industries.There are only industries whose service components are greater or less than those of other industries. Everybody is in service.” -Theodore Levitt-
- 4. What is services? It is the part of the product or the full product for which the customer is willing to see value and pay for it. Services are deeds, processes and performance. Intangible, but may have a tangible component. Generally produced and consumed at the same time. Service is any act or performance that one party can offer to another that is essentially intangible and does not result in any ownership of anything. Its production may or may not be tied to physical products..Philip Kotler
- 5. Difference between physical goods and services Physical goods Services tangible intangible homogeneous heterogeneous Production and distribution are separated from consumption Production, distribution and consumption are simultaneous processes A thing An activity or process Core value processed in factory Core value produced in the buyer-seller interaction Customers do not participate in the production process Customers participate in production Can be kept in stock Cannot be kept in stock Transfer of ownership No transfer of ownership
- 6. Characteristics of services Intangibility Inseparability Perishability Variability
- 7. Implications of Intangibility Services cannot be inventoried Services cannot be patented Services cannot be readily displayed or communicated Pricing is difficult
- 8. Implications of Heterogeneity Service delivery and customer satisfaction depend on employee actions Service quality depends on many uncontrollable factors There is no sure knowledge that the service delivered matches what was planned and promoted
- 9. Implications of Simultaneous Production and Consumption Customers participate in and affect the transaction Customers affect each other Employees affect the service outcome Decentralization may be essential Mass production is difficult
- 10. Implications of Perishability It is difficult to synchronize supply and demand with services Services cannot be returned or resold
- 11. Reasons behind the growth of the Service Industry Increasing affluence More leisure time Higher percentage of working women Complex products Complexity of life
- 12. Service Marketing Triangle SSM An Indian Perspective C. Bhattacharjee
- 13. Table 1-3 Expanded Marketing Mix for Services PRODUCT PLACE PROMOTION PRICE Physical good features Channel type Promotion blend Flexibility Quality level Exposure Salespeople Price level Accessories Intermediaries Advertising Terms Packaging Outlet location Sales promotion Differentiation Warranties Transportation Publicity Allowances Product lines Storage Branding
- 14. PEOPLE PHYSICAL EVIDENCE PROCESS Employees Facility design Flow of activities Customers Equipment Number of steps Communicating culture and values Signage Level of customer involvement Employee research Employee dress Other tangibles Table 1-3 (Continued) Expanded Marketing Mix for Services
- 15. The three additional ‘P’s of Service Marketing People Physical evidence Process
- 16. Determinants of service quality Reliability – delivering on promises Responsiveness – willing to help Assurance – inspiring trust and confidence Empathy – individualising customers Tangibles- physical representation
- 17. Service quality is directly proportional to employee satisfaction
- 18. Marketing Challenges of Services Intangibility Services cannot be stored Trust building Brand management Competition Physical evidence Marketing and sales loose momentum
- 19. Business Environment Internal environment External environment Micro Environment Macro Environment
- 21. Micro Environment Corporate Resources Customers Suppliers Competitors Marketing intermediaries
- 22. Macro Environment Economic environment 1. Industrial policy 2. Trade policy 3. Foreign exchange policy 4. Fiscal policy 5. Monetary policy 6. Foreign investment and technology policy
- 23. Macro Environment ctnd…. Political environment Legal/ regulatory environment Technological environment Socio-cultural environment
- 24. PEST Analysis
- 25. Porters Five Force Model
- 26. 26 Examples of Service Industries Health Care – hospital, medical practice, dentistry, eye care Professional Services – accounting, legal, architectural Financial Services – banking, investment advising, insurance Hospitality – restaurant, hotel/motel, bed & breakfast, – ski resort, rafting Travel – airlines, travel agencies, theme park Others: – hair styling, pest control, plumbing, lawn maintenance, counseling services, health club
- 27. 27 Tangibility of goods and services
- 28. 28 Classification of Services Based on Degree Of Cust. Involvement ( Lovelock) 1. People Processing 2. Possession Processing 3. Mental Stimulus Processing 4. Information Processing
- 29. People Processing If the customers want the benefits that a people- processing service has to offer, they must be prepared to spend time operating actively with the service provider. The output from these services, whose period of delivery can vary from minutes to months, is a customer who has reached her destination, or satisfied his hunger, or is now sporting clean and stylishly-cut hair, or has had a couple of night’s sleep away from home, or is now in better physical health. It is important for managers to think about process and output in terms of what happens to the customer because that helps them to identify what benefits are being created.
- 30. Possession Processing Possession processing services include transport and storage of goods, wholesale and retail distribution, and installation, removal and disposal of equipment; In short, the entire value-adding chain of activities during the lifetime of the object in question. Customers are less physically involved with this type of service than with people-processing services.
- 31. Mental Stimulus Processing Services that interact with people’s minds include education, news and information, professional advice, psychotherapy, entertainment and certain religious practices. Service such as entertainment and education are often created in one place and transmitted by television or radio to individual customers in distant locations. Since the core content of all services in this category is information-based (whether it is much, speech or visual imagers), they can easily be converted into digital bits, recorded for posterity and transformed into a manufactured product, such as a compact disc, videotape, or audio-cassette-much like any other physical good-or delivered via the Internet.
- 32. Information Processing Information processing has been revolutionized by the use of computers. However, not all information is processed by machines. Among the services that are highly dependent on effective collection and processing of information are financial and professional services such as accounting, law, market research, management consulting and medical diagnosis. The extent of customer involvement in both information and mental stimulus processing services is often determined more by tradition and a desire to meet the supplier face-to-face, than by the needs of the operational process. As technology improves and people continue to become more comfortable with videophones or the Internet, we can expect to see a continuing shift away from face-to-face transactions.
- 33. 33 Four Categories of Services Employing Different Underlying Processes People Processing Possession Processing Mental Stimulus Processing Information Processing (directed at intangible assets) e.g., airlines, hospitals, haircutting, restaurants hotels, fitness centers e.g., freight, repair, cleaning, landscaping, retailing, recycling e.g., broadcasting, consulting, education, psychotherapy e.g., accounting, banking, insurance, legal, research TANGIBLE ACTS INTANGIBLE ACTS DIRECTED AT PEOPLE DIRECTED AT POSSESSIONS What is the Nature of the Service Act? Who or What is the Direct Recipient of the Service?
- 34. 34 Marketing Framework 3 C’s Customers Competitors Company S (Segment) T (Target) P (Position) MarketIntelligence 4 P’s Product Price Place Promotion
- 35. Why Study Service Operations? • Service firms are a large percentage of the economies of industrialized nations and it’s growing – 80% of the US economy (employment and GDP) • There is little focus on services in the academic world. Gain a competitive edge. • Not all management tools that are appropriate for manufacturing are transferable into a service environment
- 36. The Importance of Service Sector Historically service is defined by what it is not: Services are not Goods Producing Manufacturing & Construction Extraction Agriculture, forestry, fishing & mining Services Retailing, Wholesaling, Transportation, Financial services, etc. Nowadays service is ubiquitous.
- 37. Role of Services in an Economy
- 38. Definition of Service Firms Service Enterprises are Organizations that Facilitate the Production and Distribution of Goods, Support Other Firms in Meeting Their Goals, and Add Value to Our Personal Lives. - James Fitzsimmons
- 39. Bell’s Stages of Economic Development Preindustrial Industrial Postindustrial Features Society Game Pre- dominant Activity Use of Human Labor Unit of Social Life Standard of Living Measure Structure Technology Pre- Industrial Against Nature Agriculture, Mining Raw Muscle Power Extended Household Subsistence Routine, Traditional, Authoritative Simple hand tools Industrial Against fabricated nature Goods, Production Machine tending Individual Quantity of Goods Bureaucratic , Hierarchical Machines Post- Industrial Among Persons Services Artistic, Creative, Intellectual Community Quality of life in terms of health, education, recreation Interdepende nt, Global Information
- 40. 2 Historical US Employment by Economic Sector 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 1800 1850 1900 1950 2001 Year PercentofWorkforce Extraction Goods Producing Service Producing
- 42. Distribution of GDP in the US Economy Product Services Physical Information 6% 10% 31% 53% 37% 63% 84%16% D BA C
- 43. a. Preindustrial In U.S , during year 1800 Employment in extraction field Agriculture is the most prominent. More than 80% workforce in Agriculture sector Service occupations mostly were domestic servants and sailors Family relationships and tradition important but education and innovation are not Quality of life dependent on nature
- 44. b. Industrial Year 1900 to 1950 Important activity Goods production Quality of Life Measured by accumulation of goods. “He who dies with the most toys, wins” Focus was on maximizing the productivity of labor and machines Extreme division of labor Dehumanizing jobs hence labor unions were formed “Manual workers” outnumbered “white collar workers”
- 45. c. Postindustrial Year 1950 onwards Service producing industries increased from 50% to 80% in US Health, Education, & recreation predominates and it determines Quality of Life A small subset of the service economy called “experiences” will be a dominant economic force Information rather than muscle was the focus; workers value based on judgment, creativity & theoretical reasoning New paradigms are required to manage service industries.
- 46. New Experience Economy Service undergoing transformation from the traditional concept of a service transaction to one of an experience. Eg: Disney World, Starbucks, etc. Economy Agrarian Industrial Service Experience Function Extract Make Deliver Stage Nature Exchangeable Tangible Intangible Memorable Attribute Natural Standardized Customized Personal Method of Supply Stored in Bulk Inventoried Delivered on demand Revealed over time Seller Trader Manufacturer Provider Stager Buyer Market User Client Guest
- 47. Reasons for transformation from industrial to post industrial era Natural development of services such as transportation & Utilities to support industrial development Population growth & mass consumption of goods increase wholesale & retail trade along with banking, real estate, & insurance Higher income means higher demand for durables & services, proportion spent on food & home decreases. (Similar to Maslow’s Hierarchy)
- 48. 3 What is Operations? The transformation process that turns inputs into outputs, that is, the act of combining people, raw materials, technology, etc. into useable services and products Who is in the operations function? The people who actually make a product or perform a service Typically operations has the largest number of employees of any functional area Importance of studying “operations” in services
- 49. Opportunities in Service Sector Vast & untapped opportunities to improve service businesses. Only manufacturing is being considered for a time being. Imbalance exists which creates a huge opportunity
- 50. Operations in the Service Sector Many products: Combination of Goods and Services Services Repair and Maintenance Government Food and Lodging Transportation Insurance Trade Financial Real Estate Education Legal Medical Entertainment and Other professional Occupations
- 51. Classification frameworks Classification helps in finding commonalities Similarities helps in finding insights Well known classifications Customer Contact Model Service Process Matrix (Proposed by Schmenner)
- 52. Customer Contact Model Services are classified according to the amount of customer contact Pure Services Mixed Services Quasi-Mfg. Manufacturing Medical Restaurants Transportation Branch offices Home offices Distribution centers • Guiding Principle: timeCreationService TimeContactCustomer fEfficiencyPotential __ __ 1_ High Contact Low Contact
- 53. Service Process Matrix Professional Service •Doctors •Lawyers •Accountants •Architects Mass Service •Retailing •Wholesaling •Schools •Retail Aspects of Commercial Banking High Service Shop •Hospitals •Auto Repair •Other Repair Services Service Factory •Airlines •Trucking •Hotels Low HighLow Degree of Labor Intensity Degree of Interaction and Customization
- 54. Low Labor Intensity Challenges for managers Capital decisions Technological advances Managing peak/non-peak demand Scheduling service delivery High Labor Intensity Challenges for managers Hiring, training Methods development Employee welfare Scheduling workforces Control of far-flung locations Managing growth Low Interaction/Customization Challenges for managers Marketing Making service “warm” Attention to physical surroundings Managing fairly rigid hierarchy with need for standard operating procedures High Interaction/Customization Challenges for managers Fighting cost increases Maintaining quality Reacting to consumer intervention in process Managing flat hierarchy with loose subordinate- superior relationships Gaining employee loyalty
- 55. Module I Faculty: J.Rai, IIPM-School of Management, Kansbahal 55