Chapter 1: The metamorphosis of services Flashcards
I. Importance of services, tourism and hospitality industry
Understanding of service
The service sector plays a major role in the daily life of every human being
In the English-language literature one distinguishes between:
(A) the service as a form of economic exchange in the sense of an act or process (verb “(to) service”) (process understanding) and
(B) the service as an intangible units or activities offered for sale or as part of a sale (noun “services”). i.e. Education, Assessor, Customer hot line.
Service management is a holistic term (understanding of process as a whole), providing value to the customer, taking into account tangible and intangible performance aspects.
The Service Economy
An increase in family income has three effects on spending behavior:
(1) The percentage of income spent on food decreases
(2) The percentage of income spent on housing and housing related needs remains stable
(3) The percentage of income spent on other purchases (e.g., education, healthcare, entertainment, leisure, and transportation) increases (with Service sector more important)
As a result, the positive development of an economy, mostly due to the increase in wealth in a society, services are becoming increasingly important
Growth in the service sector
- The service sector is increasing in size and importance over time
- In most developed economies, the service sector accounts for more than 70% of gross domestic product and more than 75% of the population work in the service sector
Global Importance of Tourism and Hospitality
- Growing importance of tourism: Tourism is a leading global industry and a key component of global socio-economic development (10% gdp and employment)
- Changing patterns in tourism: Socio-demographic changes, technological changes, changes in lifestyle, wealth, and an active aging society with high purchasing power are leading to changes in the behavior and habits of tourists (i.e. sustainable development vacations, i.e. Aida eco-stromer shifts, less plastic, air bnb, online travel booking, reviews, etc.). Global shift (new markets), digital shift (social media), and relevance of real experience.
- Changing patterns in the hospitality industry: change in social habits (socializing outside family, meet with friends pubs); changes in work schedules (fast food, lodge); firms, customers and employees become international and multicultural businesses (i.e. asia restaurants, vegan rest.).
- Tourism and hospitality are at the core Service companies
Three essential elements of the hospitality industry (main functional areas)
Accommodation, Food and Beverage, and Entertainment
The three functional elements within the hospitality industry can be offered individually by different companies, or companies offer any combination of all three elements
II. Service Management
Emergence of service management
- Mention in the scientific literature since the early 1980s
- Definition of the term service management: “… a total organizational approach that makes quality of service, as perceived by the customer, the primary driving force for the operation of any business” (Albrecht 1988, p. 20)
- Service management requires a “service mentality” that penetrate the entire organization
- Service management is: interdisciplinary, a holistic perspective (≠ discipline), a key success factor in service organizations
From Product to Service management
- The traditional 4 Ps marketing mix (Product, Price, Place, Promotion) has proven to be inadequate for marketing services
- Expansion of the marketing mix to the 7 Ps:
People: Any person who directly or indirectly influences the perceived value of a product or service (employees, managers, consumers)
Processes: Procedures, mechanisms, and flows of activities that result in an exchange of value
Physical Evidence: the environment in which the service is provided and in which the service provider and the consumer interact
“Servitization”
- Competing products often difficult to differentiate from a customer perspective
- Services as a sustainable competitive advantage (not easy to copy)
- Companies see services as a way to differentiate their product offerings and add value to strengthen their customer relationships. i.e IBM no longer a manufacturer, it is a solution provider.
“Servitization” describes the approach of many companies that have traditionally understood as manufacturers of tangible products to integrate more and more service components into their service offering (e.g. through bundles of services)
Coordinated benefits in the Service delivery
- Services are often provided step by step or in bundles
- Two types of service bundles
A single provider gradually brings a range of services to customers
A single customer receives additional services from other providers before or after a provider provides the core service - Service ecosystem: Service companies can not exist in isolation and independently; they form partnerships and collaborations with other companies to jointly offer bundles of services to meet the diverse needs of individual customers (i.e. Hotel give service and it has a partner with a firm that offers rent bikes). Importance of network, value creation, and exchange.
Components of a tourism service
- The overall service consists of a combination of individual services that are basically independent but consumed by tourists in an on-going process
- Tourism is a system made up of three components:
(1) Services receives at the place of origin (travel agents)
(2) Services on the route (transport airlines, food while travelling)
(3) Services at the destination (accommodation, food)
The concept of service interrelationship affects both the individual organization and the cooperating organizations and highlights the importance of all service components for the overall service. (Employee should be capable of going beyond departmental boundaries to satisfy a customer).
Core service and peripheral services
Common components of a complete service:
- Core service: main benefit that the customer demands
- Peripheral services: accompanying services that provide the customer with additional benefits
The core service is the main reason for the exchange, the peripheral services should support the core service, complement and generate additional benefits, and influence the long term customer loyalty.
Application of the service management theory
- The primary task of a service company is to provide a service for and with the customer and thus to add value
- From Value Creation to Value Co-Creation (customer is active, i.e. haircut)
- In the hospitality industry, service companies offer the customer an experience that consists of many service moments
- Managers need a deep understanding of what they offer and how they should offer it in order to provide the best possible experience for their clients.
Service-dominant logic (S-D logic):
foundational premises
FP1 Services are the fundamental basis of the exchange
FP2 Indirect exchange masks the basic basis of the exchange
FP3 Goods are distribution mechanisms for services
FP4 Operational resources are the fundamental source of competitive advantage
FP5 All economies are service economies
FP6 The customer is always a co-creator of the added value
FP7 A company can not provide benefits, but only make a benefit promise
FP8 A service-centered perspective is always customer-centric and relational
FP9 All social and economic actors are integrators of resources
FP10 Benefit is determined exclusively and phenomenologically by the beneficiary
Key principles for service management in tourism and hospitality
Focus on providing a service to the customer:
(1) Organizations in the tourism and hospitality industry are business enterprises and their focus should therefore be primarily on the customer
(2) Organizations in the tourism and hospitality industries are service providers and their focus should therefore be primarily on the service
(3) Services in tourism and hospitality organizations are provided by the staff, so that the focus should equally be on the service person
Tourism and Hospitality Services are service companies that require a holistic, cross-functional approach to meeting customer needs in the context of personal relationships and experience.
Summary: The metamorphosis of services
- Service management understands services as processes. It deals with managing the provision of value to the customer, taking into account both tangible and intangible performance aspects
- With the development of an economy, the economic importance of services continues to increase
- Tourism and hospitality industries are becoming more and more important in their economic importance
- Hospitality consists of the three components of accommodation, food and drinks as well as entertainment
- Service Management is defined as “… a total organizational approach that makes quality of service, as perceived by the customer, the primary driving force for the operation of any business”
- Services leasing (evolving from product to service management) requires an enhanced marketing mix based on 7 Ps (Product, Price, Place, Promotion, People, Processes, Physical Evidence).
- The service provision is based on coordinated benefits, consisting of a core service and peripheral services
