CHAPTER SEVEN

DESIGNING AND MANAGING SERVICE

What Is Service?
 Definition of service
 Services are economic activities that create value and
provide benefits for customer s at specific times and
places, as a result of bringing about a desired change in
or on behalf of—the recipient the service.
 What is the difference and similarity b/n service and
goods
 7.2 BASIC DIFFERENCES BETWEEN GOODS AND SERVICES

 Customers do not obtain ownership of services.

 Service products are intangible performances.

 There is greater involvement of customers in the production

process.
 There is greater variability in operational inputs and outputs.

 Many services are difficult for customers to evaluate.

 There is typically an absence of inventories.

 The time factor is relatively more important.

 Delivery systems may involve both electronic and physical

channels.
DISCUSSION QUESTION
What is the characteristics of service
And its market implication?
7.3 Characteristics of service
A. Intangibility
 A service is ‘something which can be bought and sold,
but which you can not drop on your foot/base.
 The intangibility characteristic of services often
increases risk for the purchaser.
 Some services are perceived to be riskier than others
depending on whether they are high in
● Search factors: Information related to the product
● Experience factors, or
● Credence factors.
CONT’D…
 Service that is high in credence factors is the one that is
difficult to evaluate even after experiencing it.
 These are services that are often offered by professionals
or experts in their field.
 For many of us, it would be difficult to evaluate whether
services offered by doctors, vet, car mechanics, plumbers
or surveyors are value for money, simply because we do
not have the knowledge to question them.
 EXPERIENCE
A service that is high in experience factors is one that
customers must try out (experience) before they can
decide whether or not it is a good deal.
 Paying for a holiday package, for example, is high in
experience factors as it setting the context involves so
much more than can be conveyed by the holiday brochure.
 7.4 MARKET IMPLICATION OF
INTANGIBILITY OF SERVICE
 Tohelp a customer picture a service prior to usage a service
organization needs to provide something tangible, e.g.
computerized representation of hairstyles or organizational
catalog/ booklet
B. HETEROGENEITY/VARIABILITY OF
SERVICE
 Organizations providing services to customers know
that no two service provisions are exactly the same,
whatever the attempts to standardize them, The
quality of any service will vary when offered by
different employees, probably at different times of the
day.
 MARKET IMPLICATION OF SERVICE VARIABILITY
 Reducing variability involves determining the causes.
 It may be due to unsuitable personality traits in an
employee which are very difficult to detect at the selection
stage.
 There is nothing much that can be done about this except
hope that the employee decides to terminate his/her
employment!
 However, there may be good sound reasons for variations
in performance. For example, it could be due to poor
training and supervision, lack of communication and
information, and generally a lack of regular support.
 CONT’D…
 Some have argued for a replacement of labour with
automation and a production line approach to service
operations.
 This would mean a reduction in employee carefulness and
an increase in standardization of procedures.
 The operation of McDonald’s restaurants is put forward as
an ideal model of service industrialization.
 The other source of variability is, of course, the customer;
Peters and Waterman in their bestseller, In Search of
Excellence, called for staying ‘close to the customer’.
CONT’D…
 Unfortunately, if we regard it as ‘physical proximity’
then, according to one view, this is being ‘steadily
undermined by the zealots of increased productivity and
back room operations.
 The customer is in danger of being controlled to the point
where customer service is becoming just another stage in
a systematic manufacturing process, McDonald’s being
the definitive example’.
C. SERVICE INSEPARABILITY
 In many service operations, production and consumption
cannot be separated; that is, a service is to a great extent
consumed at the same time as it is produced.
 For example, although the hairdresser may prepare in
advance to carry out the service (that is, gather the
necessary equipment, undergo specialized training, and so
on, most of the hairdressing service is produced
simultaneously as the customer consumes the service (that
is, sits in the chair).
 CONT’D…
 Goods = production storage sold
consumed
 Service = sold Produced and consumed at
The same time.
MARKET IMPLICATIONS INSEPARABILITY
 The involvement of the customer in the production and
delivery of the service means that the service provider
must exercise care in what is being produced and how it is
produced.
 The service production stage will be of particular
significance. E.g. How teachers, doctors, bank tellers,
lawyers, car mechanics, hairdressers conduct themselves
in the presence of the customer may determine the
likelihood of repeat business.
 Therefore, proper selection and training of customer
contact personnel is necessary to ensure the delivery of
quality
 D. PERISHABILITY
 This refers to the fact that, unlike physical goods, services
cannot be stored.
 Passengers on a delayed train, for example, may feel better
if the rail staff can provide information and even offer free
drinks without needing management approval.
 An appointment with a dentist, in contrast, at a given time
on a given day, cannot be stored and offered again to
customers.
MARKET IMPLICATION OF THE PERISHABILITY
 Fluctuations in demand characterize service
organizations and may pose problems where these
fluctuations are unpredictable.
 Strategies need to be developed for producing a better
match between supply and demand.
 So, what types of strategies will be recommend at
various period of time
7.5. SERVICE MARKETING MIXES (7P’S )
1. PRODUCT
 A product means what we produce.

 If we produce goods, it means tangible product and when

we produce or generate services, it means intangible
service product.
 A product is both what a seller has to sell and a buyer
has to buy.
 Thus, an Insurance company for example sells services
and therefore services are their product.
PRICING
 With a view of influencing the target market or prospects
the formulation of pricing strategy becomes significant.
 The three main factors used for determining the
premium rates plan are mortality, expense and interest
 Expenses: The cost of processing, commission to agents,
reinsurance companies as well as registration are all
incorporated into the cost of installments and premium sum
and forms the integral part of the pricing strategy.
 CONT’D…

 Interest: The rate of interest is one of the major factors

which determines people's willingness to invest in
insurance.
Generally,
 People would not be willing to put their funds to invest in
insurance business.
 If the interest rates provided by the banks or other financial
instruments are much greater than the perceived returns from
the insurance premiums.
3. PLACE

 This component of the marketing mix is related to two

important factors:
a. Managing the insurance personnel, and
b. Locating a branch
 The management of agents and insurance personnel is
found significant with the viewpoint of maintaining the
norms for offering the services.
 This is also to process the services to the end user in
such a way that a gap between the services- promised and
services -- offered is bridged over.
 In a majority of the service generating organizations, such a
gap is found existent which has been instrumental in
making worse the image problem.
4. PROMOTION

 In a country where the rate of illiteracy is very high like

Ethiopia the rural economy has dominance in the national
economy.
 It is essential to have both personal and impersonal
promotion strategies.
 Fore instance : advertising and Publicity, organization of
conferences and seminars, incentive to policyholders
are impersonal communication are used to promote their
service.
PEOPLE
 Understanding the customer better allows to design
appropriate products.
 Being a service industry which involves a high level of
people interaction, it is very important to use this
resource efficiently in order to satisfy customers.
 Training, development and strong relationships with
intermediaries are the key areas to be kept under
consideration.
 Human resources can be developed through education,
training and by psychological tests.
 Even incentives can inject efficiency and can motivate
people for productive and qualitative work.
PROCESS:
 The process should be customer friendly in insurance
industry.
 In the insurance industry, the speed and accuracy of
payment is of great importance.
 The processing method should be easy and
convenient to the customers.
 IT will help in servicing large number of customers
efficiently and bring down overheads.
 Technology can either supplement the channels of
distribution cost effectively.
 7. PHYSICAL DISTRIBUTION:

 Distribution is a key determinant of success for all

insurance companies.
 Building a distribution network is very expensive and
time consuming.
 Technology will not replace a distribution network
though it will offer advantages like better customer
service.
 Finance companies and banks can emerge as an attractive
distribution channel for insurance in Ethiopia.
 In developed countries half of the insurance sales are
made through banks..
 7.6. Reasons for the Growth Service Sector

Some of the reasons for the growth in many countries are:

1.Deregulation:
Major service industries, such as financial services and transport
services have been deregulated, resulting in increases in the
numbers and types of service providers in these sectors.
2. Increased wealth:
People with more disposable income consider purchasing services
previously undertaken in the home, such, cleaning, children’s
parties.
This has resulted in increases in service businesses offering dry-
cleaning, takeaway meals, domestic cleaning, and the generation
of novel ways to provide birthday party experiences out of the
home.

,
 CONT’D…
3. Increased free time:
 People fill their time with leisure pursuit and travel.
 Now days different hotels are providing different
environment has been specifically designed to offer a wide
range of sporting and social activities to ensure that
members enjoy their most valuable leisure time.
3. Changing demographics:
 The increase in both the number of working women and the
number of people aged over 55 years in the UK, has
resulted in the increase of specific services which recognize
the changes; for example, nanny/baby-minding services
and pre-school nurseries,off-peak holiday packages and
social activities such as ‘bingo’.
CONT’D…
4. Information and digital technology in the home: Service
companies have set up, or have attained a presence on the
internet in recognition of the potential for online service
purchases made at home
Customer Involvement and Uncertainty
 Customer Involvement, uncertainty and service encounter Will
be addressed by the articles you are going to review and
present it.
 7.7. SERVICE QUALITY, CUSTOMER EXPECTATION AND PERCEPTION
 What is your understanding about service quality,
expectation and perception of the customers?
 7.4.CUSTOMER SATISFACTION VS SERVICE
QUALITY
 Quality is conceptualized as an attitude, the customer’s
comprehensive evaluation of a service offering.
 It is built up from a series of evaluated experiences and hence is
less dynamic than satisfaction where as, satisfaction is the
outcome of the evaluation a consumer makes of any specific
transaction.
 A conceptual framework (a Gaps model) and a measurement
instrument SERVQUAL has been produced and widely used
by companies to assess service quality.
CONT’D…
 As to the finding Parasuraman, Zeithaml and Berry
(PZB) feel that ‘the only criteria that count in evaluating
service quality are those defined by the customer’.
 In their early research, PZB identified ten criteria that
customers use to judge the quality of the service that they
receive.
 PZB point out that the ten determinants are not
necessarily independent of each other; that is, there could
be some overlap between the categories.
CONT’D…
 After further research into the measurement of service
quality, PZB advocated that the ten determinants could be
collapsed into five dimensions of quality. These are:
1. Tangibles: including the physical components of the
service, e.g. seating, lighting, and so on.
2. Reliability: dependability of service provider and
accuracy of performance;
3.Responsiveness:promptnessand helpfulness/kindness
4. Assurance: knowledge and courtesy of employees
and their ability to inspire trust and confidence.
5. Empathy: caring, individualized attention the firm
gives its customers.
 CONT’D…
 Assurance’ encompasses competence, courtesy, credibility
and security, and ‘empathy’ includes access,
communication and understanding the customer.
 PZB also identified potential causes of service quality
deficit: the ‘Gaps model’
 Gap 1: The gap between customers expectations and
management perception of customers’ expectations:
Due to:
 Lack of marketing research (inaccurate information,
inadequate use of the findings.
 Poor upward communication from contact personnel and

too many management or organizational layers.

 CONT’D…
 Gap 2: the Gap between management perception of customers’
expectations and service quality specifications. Due to:
● Lack of management commitment.
● Poor management of planning and planning procedures.
● Lack of goal setting.
Gap 3: The gap between service quality
specifications and actual service delivery. Due to:
● Rigid or complicated service specifications
 Poor internal marketing

● Employee role ambiguity and/or conflict

● Break-down in technology or systems support
 CONT’D…
 Gap 4: the gap between service delivery and external
communications to the customers. This is due to :
 Marketing poor communication not integrated between
operations and the advertising, sales and human resource
functions.
 Differences in procedures across the organization.
 Propensity to over-promise and exaggerate
SERVPERF MODEL
 To overcome the perceived problems with SERVQUAL, they
developed a performance-based conceptualization of service
quality and called SERVPERF.
 Read the various research arguments of the two model
(SERVPERF and SERVQUAL)
 2.2. EXPECTATION
 This definition of expectations differs from the way the
term is used in the service quality management and the
consumer satisfaction literature.
 Expectations in the satisfaction literature have been

operational zed as predictions of service performance while

expectations in the service quality literature are interpreted
as what the service provider should offer
 CONT’D…
 Types of expectations might include:
 Desired service: the "wished for "level of service

quality that a customer believes can and should be delivered.

 Adequate service : the minimum level of service that a
customer will accept without being dissatisfied.
 Zone o f tolerance : The inherent nature of services makes
consistent service delivery difficult across employees in the
same company and even by the same service employee
from one day to another.
 The extent to which customers are willing to accept. This
variations called the zone of tolerance.
CONT’D…
A performance that falls below the adequate service level
will cause frustration and dissatisfaction, where as one
that exceed the desired service level will both please and
surprise customers ,creating the“ customer delight ."
7.8 FACTORS THAT AFFECT CUSTOMER EXPECTATIONS
 Four key factors that might influence a customer’s
expectations:
1. Word of mouth communications; for example, what your
friends think about the hairdresser that you are planning to
use.
2. Personal needs and preferences; for example, whether you
personally think that it is important the sales staff wear/ the
same uniform.
3. Past experiences; for example, if you are a regular user of a
particular restaurant and have always been given a rose at the
end of your meal you would come to expect this treatment.
CONT’D…
 However, if you had never been there before, the rose
would not form part of your service expectations.
4. External Communications; for example, advertising.
 An advertisement in the newspaper advising you to book
three months in advance for a table at a restaurant at
Christmas might lead some customers to make inferences
about the quality of the food they might receive on the day
7.9. SERVICE DEVELOPMENT AND
DESIGN
 Points to be consider while we design a service:

 The role of the customer

● The balance between front and back office
● The impact of technology, e.g. the involvement of equipment
● The location of service consumption (e.g. a fixed single
facility, multi-site, mobile)
● Employee skills/behaviours and degree of carefulness
● The nature of the service process, e.g. standardized, customized
● The significance of procedures
 CONT’D…
 The nature and channels of communication
 The contribution of the physical evidence to service
satisfaction
 The above points suggest that ,marketing, human resource
management (HRM) and operations management should
work together and be actively involved in the design of a
service.
CONT’D…

Degree of interaction and customization

low
high
Service factory: Service shop
Airlines Hospitals
• Retailing • Auto repair
low • Wholesaling • Other repair services
• Schools
Degree
of labor
intensiv Mass service: Professional service
ely • Retailing  Doctors
• Wholesaling • Lawyers
• Schools • Accountants
• Retail aspects of • Architects
high commercial banking

Figure 3.1 The service process matrix

 CONT’D…
 Degree of labour intensity: which is defined as the ratio of
the labor cost incurred to the value of the plant and
equipment.
 As it is a ratio, Schmenner observes that even a hospital
employing large numbers of doctors, nurses, technicians
remains comparatively low in labour intensity because of
the very expensive plant and equipment it deploys.
 CONT’D…
 Degree of interaction and customization, which is
acknowledged by Schemer as a more confusing element as
it combines two similar but distinct concepts.
 A high level of interaction is present where a customer can
actively intervene in the service process.
 High customization is an evidence when a service is
designed to respond to individual needs and preferences.
CONT’D…
 A valuable technique that will facilitate the design of a
service is called blueprinting or service mapping.
 From service mapping it is possible to identify
moments of truth together with a sense of how the service
operates.
 By bringing together all the facets of a service it
should focus your mind on how a service works and
why.
 Not everything can be spelt out in a blueprint, e.g.
organization climate, employee attitudes, but it should
serve as a building block for addressing these and other
matters of relevance in the delivery of service quality.
CONT’D…
 A framework has been suggested as to how the front and
back office should be organized and coordinated.
 The following concepts were viewed as significant for
determining the design options and conduct of service
work between the customer, front and back office.
 Input uncertainty – refers to the service organization’s
incomplete knowledge of what the customer is going to
bring to the service and how he or she is likely to
behave.
 It will vary with the two environmental variables:
customer willingness to participate and diversity of
demand.
 CONT’D…
 Customer willingness to participate – refers to how far
customers wish to play an active part in the service.
Customers’ capacity to become involved can be limited by
lack of knowledge, skills and understanding of their role.
 Diversity of demands – refers to the uniqueness of
customer demands.
 Are they to be met in a customized or standardized way?

 Interdependencies – refers to different patterns with respect

to division of service work (between front and back office
and customer) and customization versus standardization
of standard actions and interdependencies.
7.10. SERVICE BLUE PRINT
A service blueprint is basically a flowchart of the service
process.
 It is a map in which all the elements or activities, their
sequencing and interaction, can be visualized.
 There are a number of essential steps in service blueprinting
preparation:
1. Draw in diagrammatic form all the components and processes .
 If the service is simple and clear-cut and the map is
straightforward.
 More complex services may require large, complicated diagrams.

2. Identify the fail points – where things might go wrong.

.
CONT’D…
3. Set implementation standards – these are tolerances (band or
range) set around each function and regarded as acceptable
from a customer and cost viewpoint. Time is a good example
4. Identify all the evidence that is available to the customer.
Each item represents an encounter point.
5. Analyze profitability – delays in service execution through
errors or working too slowly affects profit.
Thanks!!!