Service and services

The American Marketing Association provides a rather lengthy definition of service(s) as

“products, such as a bank loan or home security, that are intangible or at least substantially so.

If totally intangible, they are exchanged directly from producer to user, cannot be transported or stored, and are almost instantly perishable. Service products are often difficult to identify, because they come into existence at the same time they are bought and consumed. They comprise intangible elements that are inseparable; they usually involve customer participation in some important way; they cannot be sold in the sense of ownership transfer; and they have no title.

Today, however, most products are partly tangible and partly intangible, and the dominant form is used to classify them as either goods or services (all are products). These common, hybrid forms, whatever they are called, may or may not have the attributes just given for totally intangible services. 2. Services, as a term, is also used to describe activities performed by sellers and others that accompany the sale of a product and aid in its exchange or its utilization (e.g., shoe fitting, financing, an 800 number). Such services are either presale or post-sale and supplement the product, not comprise it. If performed during sale, they are considered to be intangible parts of the product” (AMA, 2010b). This definition contains several elements, namely:

• Services are products which are largely intangible, e.g. a bank loan. In addition to intangibility, such products share certain common characteristics such as:

- not capable of being stored or transported, and coming into existence at the time of consumption;

- involve customer involvement in some important way;

- they are intangible and hence difficult to identify;

- they are not sold in the sense of ownership transfer; and

- they can also be a hybrid product with both tangible and intangible components.

• Service represents activities that aid in the exchange or utilization of products.

According to the above definition, service exists in two forms: i.e. services as a largely intangible product, or service as an activity that supports the utilization of a product. This section first provides an overview of the characteristics of services as products (as distinct from products that are goods); and it, then provides an overview of the service as a product-supporting activity. It is important here to note the difference between the terms ‘services’ (as product) and ‘service’ (as product-supporting activity).

Various authors have commented on the four distinguishing characteristics of services, namely, the IHIP characteristics. The IHIP characteristics stand for intangibility, heterogeneity, inseparability and perishability (Gummesson, 2004; Kotler & Keller, 2006; Zeithaml, Bitner, Gremler & Pandit, 2008). Table 4.1 provides a comparison between goods and services based on the IHIP characteristics.

Goods Services Resulting implications Tangible Intangible Services cannot be inventoried, patented,

displayed or communicated.

Standardized Heterogeneous Delivery of services depends upon both on provider and customer actions and hence quality of services is variable.

Production separate from consumption

Production and consumption are inseparable

Customers participate in and affect the transaction; customers affect each other;

employees affect the outcome of services.

Nonperishable Perishable With services, it is difficult to synchronize supply and demand; services cannot be returned or resold.

Table 5.1: Goods and Services (from Parasuraman, Zeithaml & Berry, 1985)

According to Zeithaml et al. (2008), the most distinguishing characteristic of services is intangibility. In this sense, services are performances or actions rather than objects.

Consequently, services cannot be seen, felt, tasted or touched and hence are intangible.

Intangiblity can be found in two dimensions i.e. physical intangibility and mental intangibility (Lovelock & Gummesson, 2004). Physical intangibility refers to the degree of materiality of the services product. Mental intangibility refers to the extent of difficulty involved in defining and evaluating the services product. Intangibility presents several challenges for services. Services cannot be inventoried, demand and supply cannot be matched, services cannot be easily advertised or communicated to customers and so customers may find it difficult to evaluate services (Zeithaml et al., 2008).

Services arise from the interaction between employees and customers. The heterogeneity of services is largely the result of the inherent variability in these interactions (Zeithaml, et al., 2008). Services are performances enacted by employees. Employees may be influenced by a multitude of factors. Further, customers may experience the performance under the influence of their own multiple factors. Heterogeneity also leads to several challenges. Because of the inherently variable nature of human interactions, ensuring consistent quality of services is difficult. The quality of services depends on both the customer and the provider. Whereas, the provider factors may be under the control of service managers, the quality may be affected by customer factors, over which the service manager may have no control.

Goods are typically first produced, then sold, and finally consumed. However, with services, the chain is a little different. Services are often first sold and then simultaneously produced and consumed (Zeithaml et al., 2008). This is the inseparability characteristic of services, whereby, services are simultaneously produced and consumed. This means that often the customer is present during the production of services. Furthermore, the customer may also often participate in the production process. According to Lovelock and Gummesson (2004), inseparability involves the presence of customers, the customer’s role in production and customer-to-employee and customer-to-customer interactions. Customers take on the role of coproducer or ‘partial employee’ involving the transfer of work from provider to customer (Lovelock & Gummesson, 2004). Inseparability and simultaneity of production and consumption of services means that quality of services and customer satisfaction depends on what happens in ‘real time’ between employees and customers. Thus, inseparability poses challenges regarding mass production, customization, decentralization and delivery of services at convenient locations (Zeithaml et al., 2008).

Perishability of services implies that services cannot be saved, stored, resold or returned. This is in contrast to goods that can be stored. For service managers, perishability poses challenges regarding demand forecasting and capacity utilization.

Kotler and Keller (2006) define service as “any act or performance that one party can offer to another that is essentially intangible and does not result in the ownership of anything. Its production may or may not be tied to a physical product”. According to Kotler and Keller (2006), the offerings of a company can be categorized on the basis of the extent of the service component as part of the total offering of the company: pure tangible good, tangible good with accompanying services, hybrid, major service with accompanying minor goods and services and pure service. The second category echoes the second part of the definition of service as propounded by AMA (2010b) in which the service supports the utilization of the product. Such a service exists as a product support service.

The above definitions and characteristics describe service(s) in terms of the ‘product’ that is provided to customers. According to Vargo and Akaka (2009), this is reminiscent of the ‘goods-dominant logic’ or ‘G-D Logic’ in which services are conceptualized as output. In G-D logic

“services are what goods are not - somewhat less-than-ideal products or ‘not-such-good goods’” (Vargo & Akaka, 2009). An alternate conceptualization of service is also possible. In the ‘service-dominant logic’ or ‘S-D Logic’, service is defined as “the application of specialized competencies (knowledge and skills), through deeds, processes and performances for the benefit of another entity or the entity itself” (Vargo & Lusch, 2004). In terms of this logic, service is the fundamental unit of value creation, and goods exist only as service-provision vehicles (Vargo &

Akaka, 2009). The first foundational premise of S-D logic is that the application of specialized

skills and knowledge for value creation is the fundamental unit of exchange between providers and customers (Vargo & Lusch, 2004). Gummesson (1994) stated that customers do not buy goods or services; rather, they buy an offering that creates value for the customer. Consequently, Gummesson (1994) rejected the separation between goods and services, and posited service as activities seen from the customer perspective.

In a similar vein, Grönroos (2007) states that service offers value-creating support to customers in their everyday activities and processes. In this view, customers are not concerned with goods or services; but, rather, customers look for solutions that serve their own value-generating processes. In response, firms have to choose from among four strategic perspectives: core product perspective, price perspective, image perspective and service perspective. In the first three perspectives, the firm focuses on the development of a core solution, whether as a physical product or as services, for the customer; additional services may be provided but only to aid in the use of the core solution (Grönroos, 2007). The service component is not strategic. In the service perspective, service attains strategic importance. The service perspective leads to the conceptualization of ‘service competition’ in which “the core solution is the prerequisite for success, but where the management of a number of services, together with the core solution, forms a total service offering and determines whether or not the firm will be successful”

(Grönroos, 2007). The service perspective matches most closely to that which the customer seeks.

This section has provided an overview of the concept of service and services. Over the years, the concept has undergone changes. From its modest beginning as being what-goods-are-not, the concept has evolved into a new logic, a new perspective for business. In this perspective the difference between goods and services no longer exists, and service comprises two aspects: the application of provider competences and the benefit of customers. This is the view of service that is adopted in this thesis. The next section provides an overview of the service management approach of Grönroos (2007).