Chapter 1

An Introduction to Services

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Chapter ObjectivesUnderstand the basic differences between goods and services.

Appreciate the factors that create the customer's service experience.

Comprehend the driving forces behind the increasing demand for services marketing knowledge.

Understand the two organization models used in service firms: the industrial management model and the market-focused management model.

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Opening Vignette: Private Escape

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What is a Service?Services: deeds, efforts, or performancesGoods: objects, devices, or things

The distinction between goods and services is not perfectly clear.

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Figure 1.1: Scale of Market Entities

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Figure 1.2: Molecular Model

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What is benefit concept?

Benefit concept: Encapsulation of benefits in the consumers mind

Tides core benefit conceptMight simply be Cleaning orCleanlinessWhitenessMotherhood

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What is the Servuction model?(visible) ServicescapeContact personnel Service providers Other customers(invisible) Organization and systemsServuction ModelA frameworkfor understandingthe consumers experience

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InvisibleVisible

InanimateEnvironmentContactPersonnelOrServiceProviderInvisibleorganizationand systemsCustomer ACustomer BBundle of servicebenefits receivedby Customer AFigure 1.3: The Servuction Model

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Why Study Services?Growth in the service sector employment in 200473% of GDP in Japan (58% in 1990)70% of GDP in the European Community (60% in 1990)Economic Impact81% of workforce in the United States (74% in 1984)The majority of industries in the U.S. economy do not produce, they perform

2006 Thomson Learning, Inc. South-Western

The Service RevolutionIndustrial Management model: an approach to organizing a firm that focuses on revenues and operating costs and ignores the role personnel play ingenerating customer satisfaction and sustainable profits.Market-focused Management model: a new organizational model that focuses on the components of the firm that facilitate the firms service delivery system.

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Industrial Management ModelSales Revenues are a function of:Location StrategiesSales PromotionsAdvertisingLabor and operating costs should be kept as low as possiblePlaces a higher value on upper and middle managersReplaces full-time personnel with part-time personnel to reduce costs

2006 Thomson Learning, Inc. South-Western

Industrial Management ModelConsequencesProduce dead-end front-line jobs, poor pay, superficial training, no opportunity for advancement, if any, access to company benefits. Can lead to customer dissatisfaction, flat or declining sales revenues, high employee turnover, little service productivity.

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TheservicestrategyThecustomerThesystemsThe peopleThe organizationexists to serve the needs of the people who serve the customerThe companyexists to servethe customerFigure 1.6: The Services Triangle

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Communicate the service strategy to the customer (Firms commitment to excellence)Communicate the service strategy to the employees (Good service starts at the Top)Consistency of the service strategy to run the day-to-day operationsImpact of organizational systems upon customersImportance of organizational systems and employee effortsThe customer/service provider interaction (Critical incidents or moments of truth)

Six Key Relationships

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Recognizes that employee turnover and customer satisfaction are clearly related. Employs more full-time employees. Attempts to utilize innovative data to examine the firms performance by looking beyond generally accepted accounting principles.Market-Focused Management Model

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