Services as a Special Kind of Product - Coursework Example

Services are a Special Kind of Product To understand how services are a special kind of product, it is imperative to understand what is a service, and what is a product. In the marketing literature, a product is anything that can be offered to a market that might satisfy a want or need. (Kotler, Armstrong, Brown, & Adam, 2006). Thus, services and goods both fall in the category of products since both seek to satisfy a need or want. Another way to look at a product is from the angle of producer and consumer. To the producer, a product is an aggregate of technical/physical features and characteristics. To the consumer, it is an aggregate of utilities, values, expectations and perceptions, a complex cluster of value satisfaction. Since, both services and goods aim to provide satisfaction to the end-user, both fall under the category of products. To arrive at the decision whether the subject of sale is a commodity or a service, it needs to be clearly identified that what is being sold. As a thumb rule, any offering for sale which is intangible is a service and that which is tangible is goods. Researchers have zeroed down on four categories of products: 1. Purely tangible goods 2. Tangible goods with accompanying intangible services 3. Major intangible service with accompanying tangible goods 4. Pure intangible service (Kotler, 1997) However, in real life, both pure goods and pure services do not exist. For example, a commodity like soft drink also involves some kind of intangibles like transportation and a service like education also consists of some kind of tangibles like book. Thus, every offering is a mix of goods and services; yet each offering may be segregated into goods OR service based upon the degree of tangibility and intangibility. Once it is established that both goods and services constitute a product, the question arises as to why services is a special kind of product? Why is it not just like any other product i.e. goods? Before discussing the answer to the above posed questions, I would like to draw out the similarities between goods and services. There are vast similarities between services and goods: both are generated with the end motive of sales, both seek to satisfy the end-users wants, both can be assigned value, both require human efforts/ intervention to be finally produced, both can be customized and both are marketable. To a large extent, even the principle of branding are the same for all types of products (For example: Starbucks coffee in retail shops and Starbucks coffee in the cafe are all about the same brand), although the quantum of efforts may differ for creating the brand image of various types of products. The differences arise in how and when the services/ goods are generated, how the value is assigned to services/ goods, where the services/goods are delivered and when & how much human intervention is required for the delivery of goods/ services. Generally, the services are differentiated from goods on the basis of four generic differences: intangibility, inseparability of production and consumption, heterogeneity and perishability of output. These are discussed below in detail. A major attribute of service which differentiates it from goods is the intangibility of service. Services cannot be heard, seen, felt or tasted; they can be only experienced as against goods which are visible and have physical dimensions and attributes. For example, in an educational institution, although one can see the laboratory, the library, the classrooms and other features of the institution, one cannot estimate the quality of education imparted by the above mentioned parameters. These are only adjuncts for the main purpose which is education. The quality of education can be adjudged only on the basis of development of knowledge, intellect and character of the alumni. Thus, the critical factor that constitutes education is intangible. It is impossible to measure an intangible accurately. So even though students are judged on the basis of marks they score in the exam, their scores cannot be called accurate measurement of their intellect. Another attribute of service which makes it a special product is its inseparability of production and consumption. In case of goods, there is a time and space gap between production and consumption. The goods are manufactured at one place (example soap is manufactured in factories) and consumed at another place (example houses, hotels etc.). In services, production and consumption is usually clubbed together. Both the producer of the service and the consumer of the service have to come together to experience/evaluate the service (Aspelund, 2009); production and consumption are inseparable. From the doctrine of inseparability, the corollary of period of production arises. Period of production means the time interval between production and consumption or the life of the good or service (Boulding, 2006). For example, a cathedral might stand for centuries and the furniture for decades; they can be put to use multiple times. However, an opera singer’s performance can be enjoyed only till the time she sings; beyond that it is just the memory of the experience, not the experience as such. One may argue that there are goods which can be used only once, yet the production and consumption of those types of goods is also separate. Hence, services are peculiar products in the sense that they are produced and consumed at the same time which limits their production to one time usage only. Due to inseparability of production and consumption, mass production of services is also very difficult if not outrightly impossible. Also, unlike manufacturing concerns, centralization of operations may not result in significant economies of scale since the production point of services depends upon the convenience of customers (temporal and physical). Heterogeneity of services is another attribute which distinguishes it from other products. Since services are produced by human beings and consumed by human beings, the perception of the quality of service delivered or enjoyed differs from person to person. Even if the service provider and the consumer remain the same, the perception may vary due to change of time. No two service experiences can be alike. The performance of the employees delivering the same service varies on different dimensions such as between different hour zones of the day, from employee to employee and from one service company to another service company (Folkes, 2006). However, in case of goods, physical attributes can be copied and replicas can be created. This is not the case in services since it is impossible to copy soft skills, human touch typical to a service. Heterogeneity is particularly visible in labour intensive and high-contact services. Heterogeneity of services highlights the fact that standardisation is difficult in services. One of the major challenges of service management is the effectiveness of the prescribed routines in ensuring consistent quality of service. It is advocated that service blueprints should be developed to fight inconsistencies (Shostack, 1977) i.e., an assembly line approach to the service production process. Lesser the human element in the process, more the consistency of results would be there. Electronic instrumentations, automatic teller systems, stores that display prices and allow self service, are attempts to standardise procedures and achieve consistency in the quality of service. Another property of services which makes them special kind of products is perishability of services. It refers to the inability of services to be saved, stored, resold or returned. Goods can be stored to be consumed later on. Even goods like fruits and vegetables can be stored for some period of time, by refrigeration, canning etc. and sold later. However, services cannot be stored for later consumption. For example, if the seats in a movie theatre are vacant in one particular show, they cannot be added to the next show which is going houseful. Thus, if the supply available is not used, it perishes. Unsold services cannot be carried forward as stocks. Similarly, a service once consumed cannot be returned or exchanged for another. Manufacturing of products requires dissociating production from outside influences (for example, via inventory buffers). However, decoupling of operations from outside environment is not at all possible in high contact services and marginally possible in the production of services that involve low contact with the customers (for example baggage handling at airlines terminal) (Chase, 1978). To produce goods or to create a service on an ongoing basis in a concern requires some kind of strategy. Chase and Hayes define “manufacturing strategy” as the entire process of setting up priorities and aligning the system to be consistent with those priorities. They go on to say that the manufacturing strategy framework can be easily adapted to service companies, with few modifications to accommodate the difference between goods and services. (Chase & Hayes, 1991).This argument reasserts the fact that although a coherent production strategy is required both for goods and services; the peculiar aspects of services require adjustment in strategy to fit for the production of services. Both manufacturing and services organizations give equal importance to marketing and manufacturing functions. Both the functions are co-ordinated at some level to bring coherence in the system. The traditional organization pattern is that marketing and operations are coordinated at a higher level in manufacturing firms whereas the coordination happens much sooner in service companies (Heskett, 1987). Integration of marketing and operations is often found at very low levels in high – contact service organizations. For example, in a consumer durables firm, the marketing and operations might be coordinated at a much higher level than a restaurant where marketing and operations are coordinated at lower levels. Thus, the level of coordination has more to do with the type of product being delivered i.e. whether it is commodity or service. The distinctive aspect of services can also be looked from the angle of eight characteristics of services. Lovelock and Yip (1996) list these eight characteristics as : nature of the output -performance rather than an object, people- an intricate constituent of service experience, probability of quality control issues, difficult and often immeasurable evaluation criteria, no buffer of inventories, high importance to the time factor, and availability of electronic channels of distribution. The above mentioned characteristics highlight the aspects of services which differentiate it from other types of products. The discussion would not be complete if we do not hash out the key marketing tactics which work on virtually all types of products but not on services. One such tactic is differentiating the product on the basis of novelty imbedded in it. However, ‘newness in the profession [professional services] is not nearly as favourite an attribute’ as it might be in the case of commodities such as soft drink or soap (Bloom, 1984). This is because buyers of professional services are often uncertain on the criteria to select a professional; they rather focus on past experience of the professional. Thus, a newbie is seldom approached with as much enthusiasm as an established professional in the same genre of service. For professional service providers, there is a need to be perceived as having experience which might not be the case with other product sellers. Services, unlike goods, also face the challenge of limited differentiability. It is a more uphill task in case of professional services. Differentiating one service from that of competitors is very difficult since professional services are virtually indistinguishable (Bloom, 1984). For example, differentiating one accounting audit from another is very difficult. Also capital constraints might act as entry barrier in case of manufacturing businesses. However, service providing firms rarely require large infusions of capital (barring few exceptions); hence competition can easily increase in number. However, although financial capital constraints might not be a significant barrier to entry, human capital constraints might limit potential entrants (Nanda, 2004). From the above we can conclude that if we look at services from the primary angle of their purpose reason of existence, they are same as any other product; to satisfy human needs/wants. However, if we probe further into various aspects of services, they are different from other types of products on many parameters. The difference between services and other type of products indicate that although services are products, yet of a special kind. References Aspelund, A. (2009). Marketing Services. Retrieved May 15, 2010, from Author Stream Website: http://www.authorstream.com/Presentation Bloom, P. N. (1984). Effective Marketing for Professional Services. Harvard Business Review , 1-8. Boulding, K. E. (2006). Notes on Goods, Services and Cultural Economics. Journal of Cultural Economics , 1-12. Chase, R. B. (1978). Where Does the Customer Fit in the Service Operation? Harvard Business Review , 137-142. Chase, R. B., & Hayes, R. H. (1991). Beefing Up Operations in Service Firms. Sloan Management Review , 15-26. Folkes, V. (2006). Consequences of Heterogeneity Across Service Providers. Retrieved May 15, 2010, from Services SIG Website: http://www.servsig.org/ Heskett, J. L. (1987). Lessons in the Service Sector. Harvard Business Review , 2-10. Kotler, P. (1997). Marketing Management. NJ: Prentice Hall. Kotler, P., Armstrong, G., Brown, L., & Adam, S. (2006). Marketing. NJ: Prentice Hall. Lovelock, C. H., & Yip, G. S. (1996). Developing Global Strategies for Service Businesses. California Management Review , 64-85. Nanda, A. (2004). Strategy and Positioning in Professional Service Firms. Harvard Business Review , 1-13. Shostack, L. (1977). Breaking Free from Product Marketing. Journal of Marketing , 73-80. Read More