What is a Service? Goods and services are produced in our economy. What is the difference between a good and a service? In a crude way a good is something you can take with you after purchase, whereas a service is more intangible. What do you bring home after a dental visit? Sore gums? The author of the text suggests that with a service production and consumption occur simultaneously. Plus, many services are act or interactions between the producer and the consumer. Doctors, lawyers and even teachers provide services.
Service-Product Bundle Many services come as part of a larger package of bundle of things. The author suggests this service-product bundle consists of 1) The physical goods or facilitating goods, 2) The tangible service provided or explicit service, and 3) The psychological service or implicit service. Figure 5.1 has a continuum of products that range from heavily into goods to mainly services. On the one end you have grocery shopping where you have mainly goods being taken with then services of product information and checkout being provided. Haircuts on the other hand are almost all about the service. Can you take your cut hair home with you? Probably, if you plan ahead.
Service-Product Bundle There is an example in the text about a winter ski resort. 1) The facilitating goods are the chair lifts, buildings and mountain itself at the resort. 2) The explicit service is primarily the skiing experience, but you also have the interaction with employees and the visual experience in the shops and sleeping quarters. 3) The implicit service pertains to the fun generated, the sense of security you have and the excitement of the skiing. It is important to pay attention to all these experiences. The author notes 80% of economy in US is service based. As an employee of a service organization (which might be in your future) you may want to take not that customers pay attention to their interaction with you and they want it to be a positive experience.
Service Recovery Service recovery is the ability to quickly compensate for the failure of service delivery and restore, if possible, the service required by the customer. Airlines have to deal with weather and mechanical problems. When a flight is not on time, folks miss connecting flights, business meetings and social functions. Does recovery happen here? The airlines do what they can to get you on the next flight! Obviously, service failure should be held to a minimum, but the recovery can also mean the difference between success and failure of the company.
Guarantees Imagine the following as an ad in a magazine: You see a big beautiful home with a big, green lawn and in bold type the words “Kill Roaches Dead!” In small type at the bottom you see the sentence “ We visit you home and get to work on the problem for $29.95 a visit.” When the company comes to your house a big burly guys comes in with a block of wood. He asks about the location of the problem and when he gets there he searches the area and when he sees a roach he smashes it with the board. In this silly example, by design, you see the service is not clearly defined in the ad.
Guarantees When a customer sees a defect or imperfection in a good it can be returned. But can a service be returned? The money paid for the service can be returned, but the customer really wants the service. The author suggests that service guarantees help the company in clearly defining the process of service delivery and specifies the extent of service recovery, if needed. Thus a process can be designed to provide consistent service. What guarantee does Federal Express make?
Cycle of Service In many service businesses the customer will come in contact with the business several times before the completion of the service. This usually begins with a customer inquiry and perhaps setting up an appointment to meet. The cycle is complete when the customer is on their merry way to their next endeavor. With the delivery of a service there may be several points were there is customer contact and each point can be defined as a “moment of truth.” Each time there is interaction with a customer the company can be successful or fail to meet the desire of the customer. One bad moment of truth can wipe out many positive moments.
Perceived Service Perceived service is a function of all past moments of truth. This is what is meant by the generic formula on page 81. Note, that bad moments of truth may carry a greater weight in the mind of the customer. Although not covered in the book, there is an old saying about social interaction that one should never discuss politics, sex or religion. Many people have very strong ideas about these topics. So, as a service provider, it is probably best not to broach these topics for fear of blowing a moment of truth.
Customer Contact Contact with the customer may be characterized as either low contact or high contact. Low contact services -are used when face to face interaction is not required, -require employees with technical skills, efficient processing routines, and standardization of the product and process, and -can work to average demand levels and smooth out the peaks and valleys of demand.
Customer contact High contact services -are used for changing or uncertain customer demand, -require employees who are flexible, personable, and willing to work with the customer, -must respond immediately as demand occurs in peak situations, and -generally requires higher prices and more customization due to the variable nature of the service required.
Service Matrix Another way to think about service industries to consider the service matrix. Part of the matrix, a fancy name for a table of information, categorizes the degree of labor intensity used relative to the amount of capital used. Remember capital is a resource and is made up of things such as machines and equipment and the building in which production takes place. The ratio of the cost of labor to the book value of buildings and equipment is a measure of labor intensity. A low ratio (maybe less than 1) suggest capital intensive work. Think of a hospital today, even though it has many doctors and nurses, the equipment and building is highly sophisticated and expensive. A high ratio (maybe above 1) suggests a good deal of labor intensity. Stock brokers have a ratio of 6.6.
Service Matrix The other part of the matrix has the level of interaction and customization associated with the service. The service matrix leads to 4 types of service operations: service factory, service shop, mass service and professional service. In the service factory one finds low labor intensity and low interaction and customization. So, the customer gets a highly standardized service that is also likely to be highly automated. The service shop has low labor intensity, but high customization.
Service Matrix Mass services have high labor intensity but low interaction and customization. Professional services have high amounts of each.
Employees and Service The service-profit chain is an idea that suggests the best service producers focus their attention on front-line employees who deliver the service, the technology that supports them, training and customer satisfaction. On the revenue side a satisfied customer is often a loyal one who will come back time and again. Plus, through word of mouth, the satisfied customer will lead others to your door. On the cost side of things, satisfied employees are more easily retained in the business. It is the more long term employee that really gives value to the customer. Newer employees have to be trained, but also there is the cost of lower satisfaction in customers due to lack of knowledge of the newer workers.
Anecdote Think about a time you went to a store that is supposed to have service, but the workers were grumpy. Was it a great experience that would make you want to return? I recall a time when I went to a shoe store with my parents and when we walked in the salesperson glumly said, “what do you want?” There was no happiness in the employee. He certainly didn’t seem happy to see us. My dad lead us out of the store never to return.