Background
 

Services are eating the world – but what are they?

 Work In Progress
activities attributes continuum customer economy intangible interactions logic marketing ownership problem process 5 Is, 4 Ss, 8 Ps provider value
  This article is work in progress - it will probably change (improve ) between visits, so please come back often

In our usual goods-dominant world view we readily define what a goods is – as a tangible object. Then we define services by pointing out the differences. And often these differences are phrased as problems or issues. Services are inconsistent, inseparable etc.

However, our usual view is holding us back. Services are eating the world. And we need to take a step back and think through our definition.

So what is a service?

Is it goods vs services? Are we defining services wrong? Or could our world really be service centric and goods are items that help deliver?

In this article we set out to answer those questions. Strap in, it is going to be an exciting ride through marketing, economics, delivery and midsets.

Key take aways

  • Traditionally we 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
  • But, as we study services in more depth we make several incremental realizations
    1. These 5 Is are not really applicable to all types of services
    2. And they can be positive attributes – inconsistency can mean customisable and drive relationship marketing
    3. It is not goods versus services – there is a continuum between them. Some goods have services; some services use goods
    4. In fact we live in a service world, where goods are used to distribute services
  • We define service as:
    • solution(s) provided to customer problems
    • processes, made up of a series of mostly intangible activities
    • those activities often, but not always, take place in interactions between customer and service provider
    • the customer interacts with a combination of the service provider’s:
      • employees
      • physical resources or goods
      • systems
  • We can create a more formal definition – based on sets of service characteristics – that allows us to better define a service, and hunt for innovations

What is a service?

As we explore what a service is we’ll be taking the journey shown in Figure 1. And our path will be guided by several realisations.

Figure 1: As we study services more, we end up on a journey of realisation away from our usual understanding to a more encompassing view

We’ll start at the bottom left of Figure 1. Here we capture the view most of us have of services today. With terms such as intangible, inconsistent, inseparable, involvement, inventory being used to separate services from goods. And it is a view that has been sufficient whilst our economies have appeared to be dominated by goods.

Realisations 1 and 2

But our first realisation is that we can find many services that don’t have these 5 I “problems”. And the second is that these 5 I “problems” may not be problems. They can be advantages.

So we have to question the blind faith marketing/economic courses and business schools put in the 5 Is.

Realisation 3

Once we realise it is not goods versus services we soon realise there is a continuum between them. Some goods have services. And some services have goods. This helps us understand servitisation – adding services to goods. As well as understanding that goods are used in the delivery of services.

Realisation 4

In fact, we could turn our thinking around. Rather than staying with goods and going along the goods-service continuum adding more services aspects. Why not start with the reason that everything is a service. And as we head the other way along the continuum we introduce goods as a mechanism for distributing services.

After making those four realisations, we are ready to define what a service is. And we do so in two ways. First as an English language description and secondly in a more formal way. That is useful to truly understand a service and for hunting service innovations.

So, let’s start by defining a service in the classic way, as being something inferior to goods.

The 5 I’s of Services (aka IHIP).

It was in the 80’s when researchers started taking a deeper look at services. By then there was 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 to goods.

Zeithmal, Parasuraman and Berr’s “Problems and Strategies in Service Marketing” is the usually quoted paper in this area. They summarise many papers produced. And cemented the notion of the IHIP unique features of services – intangibility, heterogeneity, inseparability and perishability. I’ve reproduced their definitions in Figure 2.

Figure 2: The IHIP unique features of services

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.

The 5 Is of services - Intangible, Inseperable, Inventory, Inconsistent, Involvement
Figure 3: The 5 Is of Services

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 quiet negative. And so services are being described as poor relatives to goods. But I’m sure you have already been thinking of contradictions tio 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.

Figure 4: Realising the 5 Is are not applicable to all services

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.

Benefits of the 5 Is of services
Figure 5: Benefits of the 5 Is of services

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.

The 4 Ss of Services - sunk cost, spillover, scalable, synergies
Figure 6: The 4 Ss of Services

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 (algortihm, gig economy, etc.). Competitors, like Lyft, were able to establish themselves easier due to spillover from Uber.

Synergies means 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 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.

The 8 Ps of the (Service) Marketing Mix - adding Performance
Figure 7: The 4, 7, or 8 Ps of the 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.

The Resulting Services Marketing Mix
Figure 8: The Resulting Services Marketing Mix

One of the take aways 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).

In reality Goods live on a continuum between Products and Services
Figure 9: Goods (marketing speak for products and services) live on a continuum between Products and Services

Lets 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.

Figure 9: Example of Goods-ServiceContinuum

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 range of brewing methods. Often you ask the barrista 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 diner 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 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 identifyies SL as an evolution of SDL. My preferred definition of service is based on SL.

Key differences between product dominant and service logic
Figure 11: The differences between Product and Services Dominant Logic

Subtleties aside, behind both logics 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 compete 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

Categorising Services by taxonomy

One way of categorising services is through taxonomy. In Figure 12 we see the 21 level-1 NACE classifications of economic output in the EU.

Service Categories - as defined by the EU
Figure 12: Service Categories – as defined by the EU

All but 4 relate to services – if we are thinking in our usual goods-dominant mindset. That’s to say the economic output of manufacturing, for example, is a goods rather than a service.

We can also categorise services by what they operate upon – a sort of functional categorisation.

Categorising Services by functionality

It an 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.

Service Categories - a functional view
Figure 13: Service Categories – Wirtz & Lovelock’s functional view

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

Around the turn of the century the definition of services was evolving as we see in Figure 14.

Some Definitions of Service
Figure 14: How the definition of Services has evolved over the years

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.

Grönroos defined services a solutions to customer problems; processes made up of a sergers of activities that the customer may interact with
Figure 15: Grönroos’ (and our preferred) definition of services

…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 Charactaristics

Gallouj & Weinstein introduced a model for describing services that is a little more formal than using just words. Here it is in Figure 16.

A service can be seen as 4 vectors of characteristics: the customer and provider competences and the technical and external characteristics
Figure 16: Lists of service characteristics acting in a service

You can read my exploation 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.

Wrapping Up

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 to 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 forwards. 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. Wether 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.

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