What are "Services"?
acts, deeds, performances
Services can be paraphrased in terms of their main attributes. They are intangible and insubstantial; they cannot be handled, smelled, tasted, heard, etc. There is neither potential nor need for storage and they are said to be inseparable and perishable. Because services are difficult to conceptualize, marketing them requires creative visualization to effectively evoke a concrete image in the customer's mind. From the customer's point of view, this characteristic makes it difficult to evaluate or compare services prior to experiencing the service delivery. They are perishable, unsold service time is a lost economic opportunity. For example a doctor who is booked for only two hours a day cannot later work those hours— she has lost her economic opportunity. Other service examples are airplane seats (once the plane departs, those empty seats cannot be sold), and theatre seats (sales end at a certain point). There is a lack of transportability as services tend to be consumed at the point of "production". There is a lack of homogeneity as services are typically modified for each consumer or each new situation (consumerised). Mass production of services is very difficult. This can be seen as a problem of inconsistent quality. Both inputs and outputs to the processes involved providing services are highly variable, as are the relationships between these processes, making it difficult to maintain consistent quality
Examples of services as a business:
Product vs Service.
All products eventually are just commodities, and people dont pay a premium for a commodity....so, the question is....what sort of service can we ALSO sell along with our cachaca? Is there any? brainstorm here..... (what if we consider selling services to bars? maybe lessons about how to mix "the perfect drink", or maybe ....what else?)
Service-Goods continuum
Service businesses disguised as a product business:
Many businesses that you think of as product-based businesses are really making the money with services. Examples include:
- car dealerships: they make no money selling cars. All of the money is in services
- Apple: selling iPods to make money off of iTunes
- GE: selling turbines, but making money selling services, maintenance, factory managment, etc.
- IBM: largest IT services company in the world
Core services
key requirement demanded by customers; that the product be made correctly, priced competitively, delivered on time, and offered with an adequate amout of customization to their needs.
1. quality
2. price
3. speed
4. flexibility
Value added services
not required, but make the customers life easier, better, more enjoyable
1. Information: give them data that can make their lives easier.
2. Problem solving: help your customers solve problems, trouble shoot, etc.
3. Sales support: improve sales by demonstrating product
4. Field support: replace defective parts quickly, repair products quickly, without trouble to customer.
These value added services differentiate a company / product / service....and lead to sustainable Competitive Advantage. They can also be a revenue center for the company, and a profit center. It is easier for competitors to copy your designs than to copy your value added services. Also, these services build relationships with customers that are more difficult to sever.
Services Management
Think of services as a professional business managment challenge, and not just one of happy customer service. First, understand the difference between the professional management of services, and then develop the strategic services vision for your company:
Service vs. Servility
There was a recent study that said that while Japan might have a great culture of "servility", they are lacking in "services". The difference is that servility is the bowing, and the attitude to serve the host. But, just because the culture of servility is there, as it may also be in Latin America, it does not mean that the service level (professional business) is also in place. See our discussion on services marketing for more....
Service Quality vs. Service Management:
Companies need to move away from thinking about services as a smiling, happy face....and toward thinking about services as a business (that needs to be managed). The key is to move from attitude (quality) and toward business (management of services as a business). It is not enough to have nice employees (managing 70% of your economy). Managers need to move away from thinking of services as "attitude", and toward the realization that services management it the key to profitable businesses.
The Strategic Service Vision statement:
- What: the service concept
- Who: the target market segments
- How: the operating strategy (value/ cost)
- execution: service delivery system
read more: James Haskett "The Service Profit Chain", 1997....details below
Measuring Service Quality
The service-profit chain
- see Hasket: recommended reading below
- created a model for measuring the level of service as perceived by the customer. Every manager should know this formula (and work it)
- Perceptions - Expectations / Service Acquisition costs + Perceived Price
- this is how to measure value
- note that perceptions and expectations are different
- Service Acquisition costs - example: camping out to get "free" tickets to a concert
SERVQUAL
SERVQUAL: is a tool to measure 10 aspects of service quality: It measures the gap between customer expectations and experience.
- reliability,
- responsiveness,
- competence,
- access,
- courtesy,
- communication,
- credibility,
- security,
- understanding or knowing the customer and
- tangibles.
read more: http://www.12manage.com/methods_zeithaml_servqual.html
Services and Economic development:
What is the link between services and economic development? While it may be clear that the most developed nations also have the highest % of services as GDP...is that a causal relationship? What comes first? Services economy or economic development? My guess is that while they may go hand in hand, there is not a causal relationship. In fact, you see countries such as Panama that have nearly 75% of their GDP as services, but could still be considered a developing nation (with a booming banking and services industry). Chile, on the other hand may see only a 48% GDP in services (2006), but this is likely skewed by the boom in copper prices (on which the Chilean economy is heavily based). But, even with these few exceptions, there does indeed seem to be a general trend toward services as an economy develops. Even China, with its current low level of services (30%) is also pushing heavily toward a service based economy in the future. They have more PhD students than any other nation, and more English students than even the USA. With this kind of push, it’s really only a matter of time till we begin to talk about the "services" industry in China. But, what caused what to happen first? Was it economic development that caused the shift toward a services focus? Or, was it the directed focus on moving up the economic ladder to more value-added services that caused China's rapid economic development? Probably they go hand in hand.
On the other hand, I’ve heard the reverse argument....That the shift away from manufacturing and toward "services" is actually the "decline of the nation". This is the argument often put forward by pro-union groups, or manufacturing associations in countries such as the US or Brazil. The argument is that there is a "de-industrialization" occurring as the "good" manufacturing jobs are moving overseas to places like China, while the "bad" services jobs are left behind (the typical illustration is a guy working at McDonalds).
Here is an argument I recently heard: "The US has a trade deficit and they focus on services, but China has a trade surplus and they focus on products....so this means that focusing on services leads to trade deficits". This would be bad if it were true...but its not a fair statement because of the trade protections that China has in place for services such as banking, insurance etc. For example; it is not currently possible for banks to enter China and offer domestic services, or insurance products, or airline seats, etc. So, while the Chinese may have open access for trading products, the US does not have open access for trading services. In other words; when comparing the impact of trading products vs. trading services, you are not comparing "apples with apples". The playing field is not exactly level.
Does this mean that trading services is necessarily worse than trading products? NO! It just means that there is more work to be done in negotiating freer access to the services market in China.
Effects of Productivity:
As countries develop, you see a greater and greater percentage of their labor force working in services rather than in manufacturing. For example, most developed nations have approximately 70% of their labor force working in services, as compared to developing nations that range between 35-60% in services.
What accounts for this large difference? Labor productivity is the key to understanding this statistic. A good example is an automotive assembly plant, such as Honda, where most of the workers in Ohio have been replaced with robots (that weld, move, and assemble automobiles). As technology improves, and capital-intensive investments are made, labor is reduced. Anther example is cotton farming in Texas, where one man can run these massive machines that can do the work of 100 men or more. As technology improves, less and less people are needed in the factories or farms, and more of the labor force is freed up for services. Is this a bad thing? No, absolutely not.
Creating the right political / economic environment (for services to flourish)
Countries that have vibrant services industries have achieved these bare essentials:
- Political stability - in general, it can be said the democracies are better for services economies because along with the freedom and market of goods and services, it helps if there is also a marketplace for ideas. With the liberalizing of telecommunications, for example, it becomes much more difficult for governments to control the freedom of speech and ideas.
- security (Colombia as an example: when security became much better, the services industry boomed).
- corruption (the less people fear corruption, the more likely they will be willing to engage in services. But, on the other hand, services such as financial services, and telecommunications allows industries such as money laundering, and gambling to take root, so its a two sided coin here).
Service Management research in emerging markets:
Brazil is a leader in services research. But the problem is that this material is in Portuguese, and is little read in the rest of Latin America. Is this an example for developing economies?
Links from Kooky Plan
Essential further reading
- James Heskett: "The Service Profit Chain" : That the customer should be--indeed, must be--at the heart of any service company's strategy is certainly not a cosmos-altering revelation. But the equations, formulas, research, and just plain common sense that three Harvard Business School professors apply to the process of creating a lifetime customer is definitely worth attention. Much of what they propose is based on a series of Harvard Business Review articles and consulting gigs as well as the tenure of a CEO of Au Bon Pain; in addition, the case histories, though a bit shopworn (including British Airways and WalMart), continue to pound home the high-profit level possible in long-term customer relationships. Marketers may fear the coming of the customer-centric organization, since many processes and functions will be turned upside down in a new kind of reengineering. Employees, however, will rejoice, since the front line is the key to unlocking customer satisfaction.
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Delivering Quality Service: Balancing Customer Perceptions and Expectations ;
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Richard Oliver: "Satisfaction" expensive, but worth it.
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Professor Bo Edvardsson: all writings by him: world expert from "service Research Center", Sweden = most impotant service research center in the world.
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