Chapter 2: Special features of services

Question 1

I. Four characteristic features of services

Differences between physical products and Services

Answer 1

• Services or service products are different from physical products in terms of their composition, production process, delivery and consumption
• The management and marketing of a service requires different approaches than those traditionally applied to physical goods
• Four characteristic features of a service (IHIP): Intangibility, Heterogeneity (variability), Inseparability (of production and consumption), Perishability / non-storability

Question 2

Intangibility, properties

Answer 2

A service is a performance, not an object-unlike physical goods. It can not be seen, felt, tasted or touched.

• Intangibility is considered the main difference between services and physical goods
• The other features of services -heterogeneity (variability), inseparability (of production and consumption), non-storability- are based on the intangibility

The special properties of intangibility:
The tangibility of a product exists along a continuum
All products have both tangible and intangible properties
Service managers should not try to “tangibilize” their service, but to market the intangible benefit
Most goods = products. Most services = experience.

Question 3

Heterogeneity, levels, consequences, advantages

Answer 3

Heterogeneity or variability implies many or different parts and many or different persons. Typically, multiple employees are in contact with an individual customer through a series of interactions. The interaction is based on people (technology is based on products, people is based on services).

• Service industries may be “person-based” or “technology-based” to different degrees
• People-based services tend to be more heterogeneous than technology-based services
• Heterogeneity holds the potential for inconsistency/variability in service performance, which means that it is at the same time a challenge and an opportunity

Three levels of heterogeneity:
The quality of service provision varies on three levels:
- From one service organization to another
- From one service provider to another
- For the same service provider on different occasions.

Variability in service provision can have different consequences:

• The service promised by the company can differ significantly from what the customer actually gets
• The same service provided to a group of customers at the same time can be perceived very differently by the members of the group

Advantages of heterogeneity:
- Use of technology versus people (= more homogeneity) in service delivery is not necessarily positive:
. Customers want to interact with a human rather than a machine
. Customers can use technology as an austerity measure and loss of quality
- Employees may customized the service they are offering (design a product that fit customer needs)
- Personalized and unique experience for the customer

Question 4

Inseparability:

Answer 4

Most services are produced and consumed simultaneously.

• Typical process for physical products versus services:
• Physical Products: Production – Sale – Consumption
• Services: Sales – Production and consumption
• Inseparability during production (customer is present during production)
• Inseparability during consumption (service provider is present during consumption)
• Inseparability of production, consumption, and marketing of the service (when an employee offers assistance, the service is marketed at the same time)

Question 5

Perishability / non-storability

Answer 5

Non-storability is closely related to intangibility and means that a service can not be pre-produced and stored, but is produced only when demanded by the customer

• Supply and demand play an important role in services:
  . Offer: Total available quantity of a product or service available to the customer
  . Demand: the quantity of a product or service purchased by customers at a given price and time
• Non-storability and intangibility make possession of a service impossible for both customers and service providers

Question 6

Management implications of the four IHIP characteristics of services

Answer 6

• Challenges of intangibility of services:
• Customers has difficulty to distinguishing between one service and another one (mgrs. should be able to communicate customers the services)
• Customer perceive the purchase of services as high-risk (guarantees can reduce the risk)
• Customers search personal information about the reliability of the service (WOM, referrals)
• Challenges of heterogeneity (variability) of services:
• Variability of service depending on time, day and service provider
• Variability in brand standards at different locations
• Challenges of inseparability (of production and consumption) of services:
• Quality control as part of the service provision, important role of the customer because participate in the product, therefore in the quality.
• “Multiple consumption”. Service is consumed by more than one person simultaneously, i.e. concern
• Shared responsibility of employees and customers for the creation of value, co-creation. Opportunity to develop personal relationships, i.e. express delivered or gift to be wrapped?
• Challenges of non-storability of services:
• Inability to store services and provide on-demand
• Focus on the management of demand (analyst fluctuations)

Question 7

II. Management of demand and supply of services
Management of demand and supply
(see graphic)

Demand Aspects

Answer 7

• Decisive for the success of a service company is the effective use of available capacities:
• Low demand: Productive capacities are wasted (low motivation employ., lost opportunity)
• High demand: Potential business is lost because the services can not be provided to all customers (customer looks other options, feel overcrowded, reduced reps. Attention).
  Services require a systematic management of demand and supply.

Demand aspects:

• Fluctuations in demand (for predictable cycles, then use strategies for smooth it)
• Influence of demand on quality (more than optimal capacity, then affects quality. Below opt capac., then low motivation employee, lost opportunity)
• Waiting and the psychology of waiting (feels longer than it is. Solutions like fast pass in Disney, have a drink)

Question 8

Strategies for Demand Management

Answer 8

Strategy: Different price systems
Description / Benefit: Price incentives for the customer to shift the demand from peak times to non-productive times
Example: “Happy Hours”, “Early Bird” tickets, changing hotel room rates depending on the day of the week or the season

Strategy: product variations
Description: Offer different variants of the same service for different customer preferences and willingness to pay
Example: Ticket categories for airlines (First Class, Business Class, Economy Class), hotel room categories

Strategy: product packages
Description: Compilation of service packages with different benefits for non-productive purposes
Example: Sunday brunch as a mix of breakfast and lunch

Strategy Development of complementary services
Description: Additional services as an alternative to capacity overloaded services
Example: Breakfast by the pool in hotels, waiting at a bar aperitif in restaurants

Strategy: Increase in demand in non-productive times through promotions
Description: Increase of customer volume in non-productive times (eg due to discounts), Considering the possible reaction of other customers
Example: “2 (nights) for 1 (night)” in hotels

Question 9

Offer aspects

Answer 9

• Capacity and quality (i.e. empty restaurant can not offer a social atmosphere, then lost quality)
• Maximum capacity and optimal capacity (Exceeds max capacity, then lost of potential customers. Exceeds opt capacity, then deterioration of quality of services)

Question 10

Strategy for Offer Management

Answer 10

Strategy: Use of part-time employees
Description / Advantage: Upgrading full-time staff by part-time staff during peak hours
Example: Adjust staffing needs by cycle (day in restaurants, week in city hotels, months in resort hotels)

Strategy: Maximizing efficiency
Description: Analysis of requirements and tasks in peak times, discussing ways to increase efficiency
Example: Combination of buffet and table service in peak-hours in restaurants

Strategy: Sharing capacity
Description: Sharing of expensive equipment and specialized staff in non-productive times
Example: Shared airport transfer from several hotels close to each other

Question 11

Summary of Special features of services

Answer 11

• Services differ from physical products in terms of four characteristic properties (IHIP): (1) intangibility, (2) heterogeneity (variability), (3) inseparability (of production and consumption), (4) non-storability
• These four IHIP characteristics pose diverse challenges for customers and businesses, and thus have implications for service management, which requires different approaches than physical product management
• Services require systematic management of demand (demand fluctuations, influence of demand on quality, maintenance and psychology of waiting) and supply (capacity and quality, maximum capacity and optimal capacity) in order to make effective use of available capacities
• Strategies for demand management in services include different pricing systems, product variations, product packages, development of complementary services, and increased non-peak demand through promotions
• Service offer management strategies include the use of part-time staff, maximizing efficiency, and sharing capacity