The Big Picture…
Traditionally we tend to define services as poor relatives to goods. They are: intangible, inconsistent, require customer involvement, delivery is inseparable from consumption, and we can’t create an inventory. We have a goods vs services mentality.
However, Services are eating the world. And so they can’t be poor relatives of goods. We make 3 initial realisations:
- Not all services have all 5 Is
- The 5Is can be advantages
- There is a continuum between goods and services rather than goods vs services
We can then make one more realisation. Rather than define services related to goods, we could (and should) define goods in relation to services. And it turns out, goods are distribution mechanisms for service. That is to say, everything is a service.
We define a service as “the application of specialized competences (knowledge and skills) through deeds, processes, and performances for the benefit of another entity or the entity itself”. And that allows us to define service more formally (and, from that, what service innovation means).
What is a service?
In our usual goods-dominant world view we readily define that goods are tangible objects. Then we define services by pointing out the differences. And often these differences are phrased as problems or issues. Services are inconsistent, inseparable etc.
In this article, we’ll explore the evolutionary definition of service. Starting with the common goods-dominant logic (ways of thinking, acting and behaving) view and ending with a service-dominant logic one.
This exploration, shown in Figure 1, is guided by several realisations:
- the traditional 5I view of service, built up by starting with goods and defining why services are inferior, is not true for all service
- sometimes (often?) the 5Is are positive attributes
- rather than goods vs service, there is a continuum. Some goods are really goods with services. And some services require goods.
Given the 3 realisations above, we make another. What if we start by defining service and then see where goods fit in. This leads us to a definition of service as:
the application of specialized competences (knowledge and skills) through deeds, processes, and performances for the benefit of another entity or the entity itselfLush & Vargo () “”
And the strange at first realisation that goods are distribution mechanisms for service.
First, let’s look at what services do.
What services do?
Categorising Services by taxonomy
One way of categorising services is through taxonomy. In Figure 2 we see the 21 level-1 NACE classifications of economic output in the EU.
All but 4 relate to service. So even from this view, we can note that service makes up a large proportion of economic activity.
We can also categorise services by what they operate upon – a sort of functional categorisation.
Categorising Services by functionality
It can be useful to think of what a service acts upon and what the actions are. That’s to say are the action tangible or intangible? And are they on people or possessions? This is exactly what Lovelock & Wirtz do in their book Services Marketing. It allows them to categorise services into the four categories we see in Figure 13.
Healthcare, for example, is a people processing service. It is tangible actions – nurses and surgeons physically doing something – to patients. Whereas Education, whilst still acting on people (students), is a mental (intangible) action. Therefore, we categorise it as a mental-stimulus processing service. An example of a possession processing service is retail: the definition of a physical possession exchange action.
In the information processing category, I list Knowledge-Intensive Business Services (KIBS). A KIBS provider applies their knowledge most often on possessions (documents, process, system) rather than people. KIBS can be subdivided:
- professional KIBS (p-KIBS) – such as lawyers, doctors etc
- technology KIBS (t-KIBS) – such as IT consultancy, data scientists, AI/machine learning experts, etc
But still we haven’t defined what a service is (beyond something that processes something. So let’s start with the old (and still current) way that most people are introduced – the 5 Is.
The 5 I’s of Services (aka IHIP).
It was in the ’80s when researchers started taking a deeper look at services. By then there were nearly 200 years of understanding the world through the lenses of goods and manufacturing. So it was natural to try and understand services by identifying the differences compared to goods.
Zeithmal, Parasuraman and Berr’s “Problems and Strategies in Service Marketing” is the paper usually quoted in this area. They summarise many previous papers. And they cemented the notion of the IHIP unique features of services – intangibility, heterogeneity, inseparability and perishability, shown in Figure 2.
Over the years these have evolved into what marketers see as 5 attributes that all (just about) begin with the letter I (Figure 3). Inseparability splits into inseparable and involvement; heterogeneity becomes inconsistent, and perishability becomes inventory.
Let’s for now believe that all services exhibit these 5 Is. And, for an example to explore these 5 Is we’ll take the service of cutting hair. That service is:
- Intangible – a haircut service, and services, in general, is made up of intangible actions. We can’t physically hold those actions or the service
- Inconsistent – a haircut on a Monday morning by Jesper is likely to be different to one on a Thursday evening by Beryl
- Inseparable – both you, who is getting the haircut and the person cutting the hair have to be at the same place and same time for the haircut service to be performed
- Involvement – you combine your wishes for the haircut with the haircutter’s experience and skills to get the haircut you want. And this can be altered as it goes through further discussion
- Inventory – we can’t store haircuts for future use, that just doesn’t make any sense
These attributes, though, are quite negative. And so services are being described as poor relatives to goods. But I’m sure you have already been thinking of contradictions to the above. And by 2004 some researchers were also pointing this out.Our default view is of goods versus services. We define services as problematic compared to good. They are intangible, inconsistent, inseparable, involvement, inventory. But, that is not entirely true. And those attributes can… Click To Tweet
Do the 5 Is apply for all services?
The 5 Is fit quite nicely for our haircut example. But it’s it really intangible? The outcome is, in a sense tangible. And what about other services? A lot of effort is put in to make services standardised. The McDonalds experience, for example, is pretty standard across the world.
In “Wither Services Marketing” Lovelock and Gummesson look at how realistic the 5 Is are for different categories of services. Their categorisation is based on the processing type of the service: people, possessions, mental-stimulus, or information. And we look at that categorisation in our definition section below. Here’s the result in Figure 4.
What do the results tell us? Well, inconsistency is the big loser. Which is not really a surprise. Of course, service companies work to minimise inconsistencies. Staff are training; service manuals are written; software builds in network buffer delays; musicians constantly rehearse shows. Some providers, e.g. Uber, eBay etc, even use customer feedback/ratings to steer consistency.
But the other attributes also suffer. Inseparability, for example, is only relevant for mental-stimulus processing service if the performance had to be live. These type of services are education, concerts etc. We’re all quite familiar now with experiencing TED presentations after the event. My MBA at Imperial had the option of live or recorded sessions.
So now we know that the 5Is have to be taken with a pinch of salt. But are they also as negative as they originally appear?
Aren’t these 5 I’s good attributes?
Consider digital goods – eBooks, music or films that are streamed. These are intangibles. Which would mean under the normal interpretation of the 5 Is is a bad thing. But, intangibles are also readily scalable. It is much cheaper to create the next instance of an intangible than a tangible. So if you run Amazon, Netflix or Spotify, that’s a great thing.
And if you want to build relationships with customers then involvement is something you really want. Inconsistency, we can re-interpret as customisation. And that is another good attribute for relationship building. You know, even at highly consistent McDonalds there is still room for secret menus that entice and enrich the customer.
Vargo & Lush set about dispelling myths around the 5 Is in their “The Four Service Marketing Myths” paper. Again, in Figure 5, I have reproduced their result, updating slightly to use the 5 Is terms instead of IHIP.
Vargo & Lush’ final point on inventory is we should maximise service flows rather than build inventories. [Too early for Service-Dominant Logic and Supply Chain Management: Are We There Yet? ?] And whilst you can hardly call Apple customisation friendly, Steve Jobs had this view on inventory:
Take auto dealerships. So much money is spent on inventory — billions and billions of dollars. Inventory is not a good thing. Inventory ties up a ton of cash, it’s open to vandalism, it becomes obsolete. It takes a tremendous amount of time to manage. And usually, the car you want, in the color you want, isn’t there anyway, so they’ve got to horse-trade around. Wouldn’t it be nice to get rid of all that inventory?Steve Jobs, 1996
My point of this section is not that we abandon the 5 Is. Rather that we look beyond the standard business school answer on service definition. These 5 Is are not the answer for all services. And their inbuilt negativity can actually be advantages.
The 4 S’s of Intangibles – Sunk cost, Spillover, Scalable, Synergies
We’ve just seen that services are (mostly) intangible. Haskel and Westlake 2018 book “Capitalism without Capital“, highlights 4 economic attributes of intangibles: sunk costs, spillover, scalable and synergies.
Scalability we’ve already spoken about. The more intangibles your service deals with, the more scalable it becomes.
Services have more sunk costs – costs that you cannot expect to recover – than goods/manufacturing. Costs such as training, goodwill, processes, personnel etc. Although services, unlike complete intangibles, may also have investments. For example, the building healthcare is provided in, the scissors used to cut hair or the computer servers behind the cloud.
Investing in a new service creates assets competitors can use. These could be information, a market place, a desirable design, or newly skilled workers. This is spillover. Uber, for example, established a proven market and a way of working (algorithm, gig economy, etc.). Competitors, like Lyft, were able to establish themselves easier due to spillover from Uber.
Synergies mean you can create greater value by linking together intangible aspects of your product/service. For example, investing in strong branding, marketing and training for your service will give greater value than just investing in one of those intangibles.
Another popular tool we can use to observe the characteristic of services is the marketing mix.
The 4, 7 or 8 P’s of the Services Marketing Mix
Back in 1960, McCarthy identified the 4 P’s of the product marketing mix: product, price, place and promotion. These Ps are the various marketing activities a firm needs to address to make a (product) sale. The 4 Ps are extremely goods-centric. The first P, product, is usually all about the goods. And the other three Ps are all about making a sale (what we will layer call an exchange of value). It’s a widely known tool.
However, less well known are the numerous criticisms, proposed alterations and additions to the 4 Ps. Mostly these arise as we start looking at services and/or relational marketing. Perhaps the one extension that is known is Booms & Bitner‘s (1981) work. They proposed 3 more P’s to get to a services marketing mix.
These additional Ps are process, people, and physical evidence. And in Marketing Management Kotler adds an 8th P – Performance. This refers to how well the company’s service competes in the market place.
The later reflects, amongst other things, the environment the service takes place in or objects required to perform the service. People refers to the employees of the service provider with whom the customer interacts. And process is the series of activities and order they are carried out.
I dig deeper into the marketing mix in my article How many Ps in the Marketing Mix. There you can find out how I end up with the resulting mix you can see in Figure 8.
One of the takeaways from this diffusion is that the goods marketing mix is a subset of the services marketing mix. In a sense, as we move from goods to services we have additional things to address. But the original things still exist. This leads us onto the goods-service continuum.
The Goods-Service Continuum
There are many things that sit somewhere between being a pure product or pure service. In fact, Palmer & Cole’s Services Marketing: Principles & Practice identified a continuum between these (see Figure 9).
Let’s consider eating as an example. At the left end of the continuum, we have the complete tangible products – like buying food at a supermarket, taking it home, and cooking yourself. At the other end are pure services. I actually can’t think of a food/eating example for a pure service. But there are 3 other points on the continuum to consider.
Think of that all-you-can-eat buffet you had for lunch. A good buffet focusses on providing a wide range of food (tangible products). But it also has some supporting services: restocking the buffet, cleaning vacated tables etc.
In the afternoon you grab a coffee from that cafe that offers a variety of beans and a range of brewing methods. Often you ask the barista which beans to have today and the best way to have the coffee brewed. You use them as a service, and happily, enjoy the performance of the coffee being brewed. You have moved right along the continuum.
Lastly, you have dinner in a wonderful 5-star restaurant. For sure, you are there for the tangible (food). But, especially for the service: the way the staff treat you, the ambience, and to take advantage of the chef’s culinary skills, etc.
If we agree that is not goods versus services, and now that there’s a continuum between goods and services. Can we take the next step and see the world as only having services?
Service (dominant) logic
The underlying logic of products, i.e. how we understand roles and value with the product, is relatively simple. The firm determines value and that is embedded in the product whilst being manufactured. A customer comes along and gets value from the product in a value-in-exchange. Thereafter the customer uses-up (or destroys) that value through using the product. We call this Product-Dominant Logic or PDL.
You probably have spotted that services don’t fit this PDL. Particularly as you head further along the continuum. To address this, Vargo and Lusch (2004) started developing Service-Dominant Logic (SDL) and Grönroos (2006) Service Logic (SL). There are subtle differences between the two, mainly around how products use in a service are seen and the amount of co-production of value. Grönroos identifies SL as an evolution of SDL. My preferred definition of service is based on SL.
Subtleties aside, behind both types of logic is the notion that no value is created by designing or building a service (unlike creating a product). A supplier offers a proposition and value is only created when the customer uses a service. Not only that, the customer (often) co-creates value with the supplier. Value is therefore seen as value-in-use and is determined uniquely by the customer.
I have more on PDL, SDL and SL in a forthcoming article. Let’s complete our exploration by looking at some modern considerations.
Services as job-to-be-done
Lastly, remember my preferred services definition? It said services are solutions to customer problems. Combine this with the concept of services as non-ownership, and I believe we arrive at the job-to-be-done theory.
This view is useful when it comes to discovering innovations, as we see when we look at Blue Ocean approach to finding new service concepts.
Defining a service
Around the turn of the century, the definition of services was evolving as we see in Figure 14.
The definitions get a bit wordy! That’s not necessarily the fault of academics. Our definition of product is perhaps too simple: something manufactured, that is tangible, and can be stored to be used at a later date.
Additionally, there is a continuum between products (goods) and services. And everything not described by a product gets thrown into the definition of services.
My preferred definition of services
Grönroos’ definition is the one I prefer – if we unpack and reorder a little as Figure 15.
…Solutions to customer problems
First and foremost, services are provided as solutions to customer problems. This is quite fundamental. It implies we need to identify both problems that a customer has and solutions. The customer might not yet be aware they have a problem – who knew people needed to tell the world everything in less than 140 characters. I will also come back to this when we talk about job-to-be-done later.
Activities in interactions
That services are processes sets them apart from products (goods). And a series of activities reflects that several things may need to happen to solve the problem. Perhaps by different providers. Think of an online shop. There is a search activity, a payment activity and a shipment activity. These are probably provided by separate providers. Further, activities are more or less intangible. Our electronic payment is intangible though physical shipping is tangible.
Also, activities normally take place in interactions between the customer and some combination of service provider elements. This is your customer experience, and where co-production of value can happen. However, the activities don’t always have to take place in interactions. Think of getting your car repaired. You interact with the garage’s employees when you drop off and pick up your car. But rarely do you interact with the mechanic whilst they are repairing the car.
Using provider elements
And those service provider elements in the definition? They are the employees, physical resources or systems of the service provider. The shop assistant, the Voi electric scooter you “hire” to make a short urban commute, the cloud where you are storing your digital photos.
Can we get to a better definition? Perhaps so if we move away from using words.
A more formal definition – Service as Characteristics
Gallouj & Weinstein introduced a model for describing services that is a little more formal than using just words. Here it is in Figure 16.
You can read my exploration of this model in my “A model for describing service” article. But in short, it captures my preferred definition above with interactions between customer and provider competences. Using provider elements – the technical characteristics, which also holds the processes – to provide a solution to the user – the external characteristics.
Such a more formal definition also allows us to understand and explore service innovation.
Well, I promised you quite a ride. And I hope you enjoyed it. First, we saw that there are four realisations we make when really thinking about services. The initial definitions of service by showing the differences towards goods is not valid in many services. Those differences were: intangible, inconsistent, involvement, interoperability and inventory. And those differences are negative, which is also not the case in reality.
Secondly, we looked at the fact that there is a continuum between goods and services. So describing services as the difference to goods is really not the way forward. Since some goods have services and some services use goods.
Then we saw that we can look at the world the other way around to our usual view. That is to say, we can see the works as service-dominant. Whether we think first and foremost in services. And that goods are actually a delivery mechanism for services.
Lastly, we could start to define what a service is. And we did so both verbally and in a more formal manner.A service is a proposed solution to customer problem(s). It is a series of activities that are more or less intangible. Those activities normally, but don't have to, take place in interactions with service provider elements. And… Click To Tweet
If our thinking about goods and services needed updating, what about innovation? In this article, I show that we do indeed need to update our thinking to innovate in this services world we are in. Since our (only) product innovation approaches contribute to the innovation problem.