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Service: The New Frontier

Welcome to
Service Management
Professor Drew Rosen

Learning Objectives

Describe the central role of services in an economy.

To explore the differences between manufacturing and
services.

Explore the role of services within manufacturing and
manufacturing’s reliance on services.

Understanding service management/service operations

Describe and contrast the features of the new experience
economy with that of previous economies.

Interactive Role of Services

Service Definitions
A Service is a Time-perishable, Intangible
Experience Performed for a Customer
Acting in the Role of a Coproducer.
James Fitzsimmons
Services are deeds, processes, and
performances.
Valarie Zeithaml & Mary Jo Bitner

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

Stages of Economic
Development
Features
Unit of
social life
Extended
household

Standard
of living
measure
Subsistence

Industrial Against Goods
fabricated production
nature

Machine Individual
tending

Quantity
of goods

PostAmong
industrial Persons

Artistic Community Quality of
InterInformation
Creative
life in terms dependent
Intellectual
of health,
Global
education,
recreation

Society Game
PreAgainst
Industrial Nature

PreUse of
dominant
human
activity
labor
Agriculture Raw
Mining
muscle
power

Services

Structure
Technology
Routine
Simple hand
Traditional tools
Authoritative
Bureaucratic Machines
Hierarchical

The Service Revolution
“There are no such things as service
industries. There are only industries
whose service components are
greater or less then those of other
industries. Everybody is in service”!
Theodore Levitt

Global Employment, % Share

Percent Employment in Service
Jobs, by Nation, 1983-1997

Growth In Employment
Global Private Sector Services, 1980-1997

Services as % of GDP

Services Defined
Service Industry
 Customer Service
 Field Service

Why Services Are Important
Increased Competition
 Manufacturing Support
 Makes Economic Sense

“When the quality and price of competing
products are similar or nearly identical,
service activities can ‘differentiate’
undifferentiated products in the mind of
the customer”
Glaskowsky et al.

Product
Price
Service
Sales Effort
TOTAL

36
23
23
18
100

38
24
20
18
100

38
26
18
18
100

36
27
15
22
10
0

48
14
22
16
100

29
26
24
21
100

38
25
22
15
100

30
22
27
21
100

31
23
23
23
100

Industrial Goods
Merchandising

Consumer Goods
Merchandising

All Merchandising

All Other
Manufacturing

Paper Mfg.

Electronics Mfg.

Food Mfg.

Chemicals &
Plastics Mfg.

All Manufacturing

Relative Importance
of Marketing Variables

All
Industries

Relative Importance of
Service Activities

28
17
39
16
100

National Council of Physical
Distribution Management

Parallel Product/Service Design
Produc
t
Conce
pt
Service
Concept

Product
Design

Service
Design

Product
Deliver
y

Service
Delivery

The Supply Chain
Suppliers
Tier 2

Suppliers
Tier 1

Distributors

Manufacturing
Inbound Logistics
Operations
Outbound Logistics

Information

Retailers

C
U
S
T
O
M
E
R
S

Service Industries
Communications, Transportation,
Utilities, Health Care, Banking, etc.

R&D
Manufacturin
g
Services Inside the
Company--Design,
Legal, Accounting
Advertising, etc.

Distribution
Services
Wholesaling
Retailing
Repairing

Service
Intermediary

Product
Design

Private Business Services
Supporting Manufacturing,
Accounting, Legal, Consulting,
Software, Maintenance

Government Support Services
Waste Disposal Services, Road Maintenance,
Education, Health Support, Standards,
Police and Fire Protection, etc.

Commercial
Services User
(Self-Service)

Consumer
(Self-Service)

Service and Profitability
Reduced operating expenses
 Competitive differentiation
 Increased quality
 Increased efficiency
 Increased responsiveness
 Increased market Share
 Increased customer loyalty

Contributors to Market Share
Market Share
Due to
Service Activities

Market
Share

Market Share
Due to
Captive Markets

Market Share
Due to
Product Features

Time

Loyalty (Retention)

Satisfaction and Loyalty

apostle
zone of affection

100%
80%

zone of indifference

60
%
40%

zone of defection

20%

terrorist

1

2

3

4

5

Dissatisfied Neutral Satisfied Very
Very
satisfied
dissatisfied

Satisfaction

The New Experience Economy
Economy

Agrarian

Industrial

Service

Experience

Function

Extract

Make

Deliver

Stage

Nature

Fungible

Tangible

Intangible

Memorable

Attribute

Natural

Standardized Customized Personal

Method of
supply

Stored in
bulk

Inventoried

Seller

Trader

Manufacturer Provider

Stager

Buyer

Market

User

Guest

Delivered
on demand

Client

Revealed
over time

The Four Realms of an Experience
Customer Participation
Passive

Active

Absorption Entertainment Education
Environmental
(Movie)
(Language)
Relationship

Immersion Esthetic
(Tourist)

Escapist
(Skydiving)

Experience Design Principles
Theme the Experience (Forum shops)
 Harmonize Impressions with Positive Cues
(Fort Lauderdale airport parking garage)
 Eliminate Negative Cues
(Cinemark talking trash containers)
 Mix in Memorabilia (Hard Rock T-shirts)
 Engage all Five Senses (Mist in Rainforest)

Role of the Service Manager
Entrepreneurial Innovation
 Capitalizing on Social Trends
 Management Challenges
Economies of Scale (MRI scanner)
Economies of Scope(Convenience store)
Complexity (Yield Management)
Boundary Crossing (Bank vs Brokerage)
International Competitiveness(Diversity)

Profits are the result of attention
to quality and customer
satisfaction, while the reverse is
rarely true.
Edwards Deming

Discussion Topics
Is it possible for an economy to be based
entirely on services?
 Speculate on the effect that the Internet will
have on the delivery of services.
 What is the value of self-service in an
economy? What are the implications?
 Comment on the role that marketing plays
in the service innovation process.
 Illustrate how the type of work he or she
does influences a persons lifestyle.