Nick Vasiliadis MKT 301 Essay 4/23/11 The Four Things A Service Business Must Get Right The economy is becoming more dominated by service focused businesses, though many of the techniques being used by these service managers are designed for product businesses. The key difference in the two is that the service industry involves the management of customers. Customers can be part of the production process in a service business where as in a product business they cannot.
The use and integration of four elements including the offering, the funding mechanism, the employee management system, and the customer management system, can help define a service business. These four elements help to create a profitable approach to service businesses and aid in depicting them from product businesses. The first element is the offering which basically explains to offer what the customer wants. From a product designers’ prospective, the focus would be on the characteristics or qualities the consumer values. From a service designers perspective the focus is on the experience the customers will have.
Management must be clear on what attributes of service the business will compete on. The businesses then must make a trade off on which attributes to target for excellence and which to target for inferior performance. In other words, they must perform worse in some areas in order to excel in others. Fast food restaurants may not provide the most professional service but their quick response time is what gets their customers coming back. The customer will ultimately decide what changes need to be made. The businesses must then act or make changes accordingly.
The next element is the funding mechanism. With a product the only way to fund performance is by reducing the price. For service businesses, the funding mechanism consists of four different forms. The first is “charge the customer in a palatable way. ” For example an upscale restaurant can charge more for the food because of the ambiance it provides. The second form is “create a win-win between operational savings and value added services,” in other words finding ways to enhance the customer’s experience by spending less. This can be done by targeting areas that are most costly or time consuming.
The next form is “spend now to save later” which is exemplified well in the company Intuit. Most might think that it would be reasonable to charge customers for support but Intuit founder Scott Cook believes by not charging them he is getting more input which leads to continued product development. The last form is “have the customer do the work. ” Usually this means cutting costs in the form of labor for example using the self checkouts at the grocery store. “If a self-service option is truly preferable, customers should be willing to take on the work for nothing or even pay for the privilege. The key is to provide the customer with a situation where they will prefer the do-it-yourself method. The third element is the employee management system. In a service businesses employee management is much more crucial due to the fact that there is more human interaction. Asking someone in a managerial position if jobs have been designed realistically, given employee selection, training, and motivation challenges, can help aid in the employee management system. Also employees must be able and motivated to provide excellent service.
People that display high aptitude and attitude are more desirable and in turn result in increased wages. In a barber shop, the barber that converses with their clients, makes them feel comfortable, and gives them a good haircut is going to be a more favorable employee. Lastly there is the customer management system. Employees as well as customers affect the operational processes in service businesses. Their input influences their experiences. For example a personal trainer needs feedback from their client in order to find out if the exercise is effective.
For product businesses, materials are bought and value is added to them. The product is then delivered to the customer. In a service business, the customer is a part of the value creation process. The important thing is to manage customers in a manner this is consistent with the service attributes that the business has chosen to emphasize. Services and products are fundamentally different. When you purchase a service you only gain the experience and the psychological benefit. When you purchase a product you are leaving with something you can physically hold and can also gain the benefit you get from a service.
For example you may experience the same joy in going to see the Blue Man Group and buying a laptop because the laptop has a longer lasting effect. Service marketing must be done holistically. It uses both external and internal marketing to motivate employees. Service companies as opposed to product companies should excel at having a strategy, a history of top management commitment to quality, self service technologies, high standards, systems for monitoring service performance and customer complaints, and lastly employee satisfaction. Successful service companies utilize all four elements.
Using this framework can take time and endure many changes until it is finally right. It is essential for all businesses to be clear in their mission statement and their strategy, but it is important that a service company is clear in the customers they target. The biggest mistake a company can make is to try to provide anything and everything to all customers. Businesses can become much more profitable and competitive by focusing on one or even multiple niches (for a multi-focused firm). All in all, product focused business and service businesses share some similar elements but ultimately differ in their framework.