Service Management Principles for Hospitality and Tourism PDF

The Nature of Service Chapter 2  Outline Differences between products and service Intangibility Heterogeneity Inseparability Perishability Management implications for ‘IHIP’ Managing service supply and demand  Differences Betwee...

The Nature of Service Chapter 2  Outline Differences between products and service Intangibility Heterogeneity Inseparability Perishability Management implications for ‘IHIP’ Managing service supply and demand  Differences Between Products and Service Service ‘products’ differ from physical products in their composition, production process, delivery and consumption The management and marketing of a service therefore requires different approaches from those traditionally used for manufactured goods Four distinctive characteristics of service: Intangibility Heterogeneity (variability) Inseparability (of production and consumption) Perishability  Intangibility What is ‘intangibility’? Service is a performance, as opposed to an object – it cannot be seen, felt, tasted or touched as goods can be. Although the effects of service might be felt for some time, the service itself essentially goes out of existence at the very moment that it is rendered. Intangibility has been called the critical difference between service and physical goods It is the factor from which the other differences between goods and service emerge Unlike manufactured goods, service cannot be physically examined (‘search’ qualities), checked (‘experience’ qualities) or tested (‘credence’ qualities’) The Special Importance of Intangibility Tangibility exists along a continuum and all products exhibit some tangible and intangible qualities, but the service remains the primary product offering Rather than striving to ‘tangibilize’ their offerings, service managers should be selling the intangible benefits  Heterogeneity What is ‘heterogeneity’? The word heterogeneity or variability implies many different parts and many or different people. Ultimately, numerous employees over a series of encounters are in contact with any one individual customer. Service industries differ in the extent to which they are ‘people-based’ or ‘technology-based’ The outcomes of people-based service operations tend to be more heterogeneous than the outcomes of technology- based operations Heterogeneity poses both challenges and opportunities because there is potential for significant variability in the performance of service, which can be positive or negative depending on the circumstance Heterogeneity at Various Levels This variability of service performance occurs at three levels. The quality of service performance varies: from one service organization to another; from one service performer to another; and for the same performer on different occasions. Therefore, what the firm has promised to deliver might be quite different from what is actually received by the customer Similarly, even the same service delivered at the same time to a group of customers can be perceived very differently between members of the group  Heterogeneity is Inevitable Although heterogeneity is essentially a ‘people problem,’ technology does not necessarily improve matters e.g. “I don’t like talking to a machine! I want to talk to a real person!” Implications for customers’ perceptions of the firm’s quality and image Heterogeneity is not always a negative Variation can be beneficial in the case of specially customized service ‘Customerization’ takes advantage of the heterogenous nature of service and allows it to turn into a personalized and unique experience for the customer  Inseparability What is ‘inseparability’? The inseparability of production and consumption refers to the fact that most service provision is characterized by simultaneous production and consumption. Typically goods are first produced, then sold, and then consumed. In contrast, a typical service is first sold, and the produced and consumed simultaneously. Inseparable during consumption The service provider is often physically present when consumption occurs (e.g. a flight attendant is present when serving an in-flight meal) Inseparable during production The customer is often physically present during the production of a service (e.g. a diner is present during restaurant service)  Inseparability Inseparability and marketing The service provider is often ‘selling’ the service (convincing the customer of its value) at the same time as it’s being produced and consumed In the case of service, the emphasis shifts from ensuring the right place and the right time to ensuring that service is produced and delivered in the right way Inseparability and quality Quality is determined by service delivery, therefore service providers are simultaneously involved in production, marketing and quality control The input from the customer is often crucial to the quality of the service  Inseparability Inseparability and ‘multiple consumption’ Many services are consumed by more than one person simultaneously The presence of others influences the perception of the quality of the service Inseparability and value ‘co-creation’ Co-creation implies that value is created at the same time as production and consumption It is a process whereby the organization, employee and customer are ‘co-responsible’ for value creation Customers are thus ‘co-developers’ of experiences and are a new source of competence for an organization, and such competence can be a source of competitive advantage, leading to ‘reciprocal value’ creation  Perishability What is ‘perishability’? Perishability, closely related to intangibility, means that a service cannot be stored, and therefore it is produced only when needed by the customer. Service production is thus dictated by demand at any given time. Reliability and timing are important in service – supply and demand thus play a significant role Supply refers to the total amount of a specific good or service that is available to customers (e.g. the number of rooms in a hotel) Demand refers to the quantity of a product or service which would be bought at a given price and at a given time Perishability, Ownership & Control Service cannot be ‘possessed’ (i.e. it cannot be stored, taken away or used at a later time) and it essentially ‘disappears’ as quickly as it is delivered The perishability and intangibility of service renders ‘ownership’ impossible - buyers of a service are buying only the right to a service, and then only at a designated time Implications for both suppliers and customers Thus, service managers must reappraise: the management of supply and demand; and the management of patents, rights and risks. Note: It is important not to confuse perishability with lost value! Value is co-produced with the customer and created at the point of consumption Management Implications for ‘IHIP’ Along with understanding the characteristics of service (IHIP), it is critical for service managers to understand the implications for these challenges in managing their service firms…  Implications with Intangibility From the customer’s perspective, intangibility is a challenge because: customers have difficulty in discriminating between one service offering and another; customers perceive the service purchase as involving high levels of risk; and customers seek personal information regarding the reliability of service. Management strategies: offer ‘clues’ with which customers are able to associate the additional benefits; offer explicit service guarantees to reduce the perceived risk; and design systems and approaches to enhance word-of-mouth advertising opportunities by customers who have already used the service.  Implications with Intangibility From the manager’s perspective, intangibility of service means that: customers take an active role in the production process and, essentially, co-produce the service; other customers co-consume the service and affect the perceived outcome; and the service is often provided only at specified locations. Management strategies: encourage opportunities for service personnel to develop personal relationships with their customers, thereby enhancing the perceived quality of service; carefully plan both the production process and the ‘multiple consumption’ stage to influence customer perceptions and ensure the enjoyment of the customer; and offer selective components of the service away from the main location (e.g. overcoming capacity limits at a restaurant by offering take-away food).  Implications with Heterogeneity Two management challenges particularly associated with heterogeneity are: customers experience the same service differently, according to the time, day and service producer; and variability can post problems in maintaining brand standards at different service locations. Management strategies: streamline service procedures and systems to reduce variability in task performance, or, in some situations, take advantage of the opportunity that variability presents for personalised service; and create a company-wide culture to maintain standards by carefully constructing a company policy that staff members are aware of and also trained and empowered to implement.  Implications with Inseparability Inseparability of consumption and production creates significant challenges for service managers, such as: quality control is embedded in service delivery with an important role played by the customer; services are delivered in a setting of ‘multiple consumption’; and employees and customers are ‘co-responsible’ for creating value. Management strategies: training and empowering employees in case of customer dissatisfaction, which calls for a service recovery; designing the ‘servicescape’ with tangible clues to help customers navigate the service process; and viewing customers as a new source of competence for the organization and finding ways to make customers their partners by actively engaging them throughout the service process.  Implications with Perishability The problem with perishability is essentially the inability to store services and offer them when needed by the customer Because a service cannot be stored, the focus must be on managing demand – as opposed to managing supply The successful management of demand must be the guiding principle in the design of any service system or process  Managing Supply and Demand The crucial issue is the degree to which available capacity is effectively utilized When demand is low, productive capacity is wasted When demand is high, potential business is lost due to the inability to supply the services Aspects of demand: variations in demand effect of demand on quality waiting and the psychology of waiting strategies for managing demand  Aspects of Demand Variations in demand Effect of demand on quality Managers need to understand why To gain customer confidence, maintain image, engender customers seek to use the service customer loyalty and enhance employee morale, when they do managers must design strategies to manage demand Regular fluctuations in demand (e.g. and quality simultaneously seasonal cycles) can be influenced ‘The Psychology of Waiting’: by creative marketing Unoccupied time feels longer than occupied time Waiting Anxious, sad and angry waits feel longer than relaxed Saving a customer’s time is one of ones the quickest ways to increase the Waits of a uncertain length feel longer than certain ones value of the service experience! Unexplained waits feel longer than explained ones Successful service firms now take Uncomfortable waits feel longer than comfortable ones advantage of technology to reduce the wait or wait perception Unfair waits feel longer than fair ones Strategies for Managing Demand Aspects of Supply (Capacity) Capacity and quality Maximum capacity represents the upper limit that the organization can possibly achieve Optimum capacity is the desirable level achievable A service organization is generally faced with one of four conditions: Demand exceeds max. capacity (business is lost) Demand exceeds opt. capacity (perceived service quality deteriorates) Demand and supply are balanced as opt. capacity is achieved Demand below opt. capacity (resources underutilized) Strategies for Managing Supply  Summary The main objective of service management is to provide guests with a superior experience – it is thus imperative that managers understand the nature of their service offerings The distinctive characteristics of service (IHIP) present significant challenges for both customers and service managers Service firms that can meet these challenges will significantly improve customer satisfaction, maintain the firm’s competitive advantage, and lift its overall profit performance