COPYRIGHT ©2002 Thomson Learning, Inc. Thomson Learning is a trademark used herein under license....

COPYRIGHT ©2002 Thomson Learning, Inc. Thomson Learning is a trademark used herein under license.

ALL RIGHTS RESERVED.

Chapter 1

An Introduction to Services

Chapter 1

An Introduction to Services



WHAT IS A SERVICE?WHAT IS A SERVICE?

The Distinction is Unclear:The Distinction is Unclear:

The Scale of Market EntitiesThe Scale of Market Entities

&&

The Molecular ModelThe Molecular Model



WHAT IS A SERVICE?WHAT IS A SERVICE?

In General:In General:

Goods Goods Objects, Devices, Things Objects, Devices, Things

Services Services Deeds, Efforts, Performances Deeds, Efforts, Performances



THE BENEFIT CONCEPTTHE BENEFIT CONCEPT

Encapsulation of benefits in the consumers Encapsulation of benefits in the consumers mindmind TideTide

CleanlinessCleanliness WhitenessWhiteness MotherhoodMotherhood



THE BENEFIT CONCEPTTHE BENEFIT CONCEPT

Services deliver the bundle of benefits Services deliver the bundle of benefits through the experience that is created for through the experience that is created for the consumerthe consumer

The servuction model provides a The servuction model provides a frameworkframework for understanding the for understanding the consumer’s experienceconsumer’s experience



Invisible Visible

InanimateEnvironment

ContactPersonnel

OrServiceProvider

Invisibleorganizationand systems

Customer A

Customer B

The Servuction Model

Bundle of servicebenefits receivedby Customer A



THE INCREASING DEMAND FOR SERVICE KNOWLEDGETHE INCREASING DEMAND FOR SERVICE KNOWLEDGE

Changes in management perspectiveChanges in management perspective The Industrial Model vs. The Market-focused The Industrial Model vs. The Market-focused

ModelModel Growth in service sector employmentGrowth in service sector employment Service sector contributions to the world Service sector contributions to the world

economyeconomy DeregulationDeregulation



THE DEMAND FOR KNOWLDEGE:SERVICE SECTOR EMPLOYMENTTHE DEMAND FOR KNOWLDEGE:SERVICE SECTOR EMPLOYMENT

Service Sector Service Sector Employment:Employment: 78% in United States78% in United States 73% in Great Britain73% in Great Britain 62% in Japan62% in Japan 57% in Germany57% in Germany 90% of All Jobs by 90% of All Jobs by

20202020

New Job Creation:New Job Creation: 80% of All New Jobs 80% of All New Jobs

(1980-1990)(1980-1990) 90% of All New Jobs 90% of All New Jobs

(1990-2000)(1990-2000) 88% of All Jobs by 88% of All Jobs by

20052005

*42% of Work Force is Providing Some Form of Personal Service



THE DEMAND FOR KNOWLEDGE:CONTRIBUTIONS TO THE ECONOMY

THE DEMAND FOR KNOWLEDGE:CONTRIBUTIONS TO THE ECONOMY

Economic impact:Economic impact: The service sector accounts for over 70% of The service sector accounts for over 70% of

the United States’ gross domestic product the United States’ gross domestic product (GDP)(GDP)

The majority of industries in the U.S. The majority of industries in the U.S. economy do not produce, they performeconomy do not produce, they perform



THE DEMAND FOR KNOWLEDGE:THE IMPACT OF DEREGULATIONTHE DEMAND FOR KNOWLEDGE:THE IMPACT OF DEREGULATION

Between 1980-1992Between 1980-1992 U.S. airlines declined from 36 to 12U.S. airlines declined from 36 to 12 the number of trucking companies that failed during the the number of trucking companies that failed during the

1980s was more than the previous 45 years combined1980s was more than the previous 45 years combined commercial banks declined by 14%commercial banks declined by 14%

Effect of DeregulationsEffect of Deregulations: No demand for services knowledge when No demand for services knowledge when

demand exceeded supply and competitive demand exceeded supply and competitive pressures were fewpressures were few



THE DEMAND FOR KNOWLEDGE:THE IMPACT OF DEREGULATIONTHE DEMAND FOR KNOWLEDGE:THE IMPACT OF DEREGULATION

Effect of Deregulations Effect of Deregulations (continued)::

Knowledge is needed in nonprice issues:Knowledge is needed in nonprice issues: customer servicecustomer service customer retentioncustomer retention image enhancementimage enhancement transforming public contact personneltransforming public contact personnel

into marketing-oriented personnelinto marketing-oriented personnel



THE INDUSTRIAL MODELTHE INDUSTRIAL MODEL

Sales Revenues are a function of:Sales Revenues are a function of: location Strategieslocation Strategies sales Promotionssales Promotions advertisingadvertising



THE INDUSTRIAL MODEL (continued)

THE INDUSTRIAL MODEL (continued)

Labor and operating costs should be kept as Labor and operating costs should be kept as low as possiblelow as possible better to rely on machines than humansbetter to rely on machines than humans narrowly defined jobsnarrowly defined jobs

Leave little room for discretionLeave little room for discretion believes most employees are indifferent, unskilled, believes most employees are indifferent, unskilled,

and incapable of completing complex tasks.and incapable of completing complex tasks. performance expectations are lowperformance expectations are low wages are kept lowwages are kept low few opportunities for advancementfew opportunities for advancement



THE INDUSTRIAL MODEL(continued)

THE INDUSTRIAL MODEL(continued)

Places a higher value on upper and middle Places a higher value on upper and middle managersmanagers

Replaces full-time personnel with part-time Replaces full-time personnel with part-time personnel to reduce costspersonnel to reduce costs



CONSEQUENCES OF THE INDUSTRIAL MODEL

(employee)


(employee) Guarantees a cycle-of-failureGuarantees a cycle-of-failure Encourages front-line personnel to be Encourages front-line personnel to be

indifferent to problemsindifferent to problems no opportunity for advancement (dead-end no opportunity for advancement (dead-end

jobs)jobs) poor paypoor pay

some companies let employees go before mandatory some companies let employees go before mandatory raisesraises




(employee)


(employee) poor pay has created a new class of migrant workerpoor pay has created a new class of migrant worker 16 million people now travel from one short-term job 16 million people now travel from one short-term job

to anotherto another

superficial trainingsuperficial training focuses only on product knowledgefocuses only on product knowledge little, if any, company benefitslittle, if any, company benefits

Prohibits employees from taking Prohibits employees from taking discretionary actiondiscretionary action

High employee turnover rateHigh employee turnover rate




(customers)


(customers) Customer dissatisfactionCustomer dissatisfaction

2/3 of customer’s defect, not due to the product, 2/3 of customer’s defect, not due to the product, but due to the unhelpfulness of the providerbut due to the unhelpfulness of the provider

flat and declining sales revenuesflat and declining sales revenues Overall the industrial approach is bad for:Overall the industrial approach is bad for:

employeesemployees customerscustomers shareholdersshareholders countrycountry



THE MARKET-FOCUSEDMANAGEMENT MODELTHE MARKET-FOCUSEDMANAGEMENT MODEL

Purpose of the firm is to serve the customerPurpose of the firm is to serve the customer Service delivery is the focus of the system Service delivery is the focus of the system

and the overall differential advantage in and the overall differential advantage in terms of competitive advantageterms of competitive advantage

The services triangle provides a framework The services triangle provides a framework for the services modelfor the services model



THE SERVICES TRIANGLE

Theservice

strategy

Thecustomer

Thesystems

The people

•The organizationexists to serve the needs of the people who serve the customer

•The companyexists to servethe customer



THE SERVICES TRIANGLETHE SERVICES TRIANGLE

1. Communicate the service strategy to the customer1. Communicate the service strategy to the customer

2. Customer/employee interaction:2. Customer/employee interaction: greatest opportunity for gains and lossesgreatest opportunity for gains and losses moments-of-truthmoments-of-truth critical incidentscritical incidents

3. Customer/procedures & physical hardware3. Customer/procedures & physical hardware A.T.M. machinesA.T.M. machines cramped airline seatscramped airline seats



4. Organizational systems may prevent4. Organizational systems may prevent employees from giving good serviceemployees from giving good service5. Physical and administrative systems 5. Physical and administrative systems should flow logically from the serviceshould flow logically from the service

strategystrategy6. Good service starts at the top6. Good service starts at the top

**MGT. should “Walk What They Talk” and provide:MGT. should “Walk What They Talk” and provide:

-sense of focus-sense of focus-clarity-clarity-priorities-priorities

THE SERVICES TRIANGLE



CHARACTERISTICS OF THE MARKET-FOCUSED MODELCHARACTERISTICS OF THE MARKET-FOCUSED MODEL

Believes employees want to do good workBelieves employees want to do good work invests in people as much as machinesinvests in people as much as machines technology is used to assist people (not to technology is used to assist people (not to

monitor there every activity)monitor there every activity) data is made available to the front-linedata is made available to the front-line



CHARACTERISTICS OF THE MARKET-FOCUSED MODEL

(continued)


(continued) Recognizes that employee turnover and Recognizes that employee turnover and

customer satisfaction are closely relatedcustomer satisfaction are closely related tie pay to performancetie pay to performance focus on selection and training of personnelfocus on selection and training of personnel

Ryder TruckRyder Truckno training (41% turnover)no training (41% turnover) received training (19% turnover)received training (19% turnover)

better trained, provide better service, require better trained, provide better service, require less supervisionless supervision




(continued)


(continued) Employ more full-time employeesEmploy more full-time employees

better for customers and employeesbetter for customers and employees companies that pay more are finding that as a companies that pay more are finding that as a

percentage of sales, labor costs are actually percentage of sales, labor costs are actually lower than industry averageslower than industry averages

COPYRIGHT ©2002 Thomson Learning, Inc. Thomson Learning is a trademark used herein under license....

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