The Big Picture…
Traditionally we define services as poor relatives to goods. We say they are: intangible, inconsistent, require customer involvement, that delivery is inseparable from consumption, and we can’t create an inventory (these are the 5Is). Doing so, we introduce a goods vs services mentality.
However, Services are eating the world. And therefore can’t be the poor relatives as so often described. Through observation we can make 3 realisations:
- Not all services have all 5 Is
- These 5Is can be advantageous – for example, creating inventory is expensive and doesn’t inconsistent really mean customisable, etc.
- There is a continuum between goods and services rather than goods vs services
If we allow our thinking to develop then we naturally come to 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”.
From that, we can define a service a little more formally in terms of a set of competencies and characteristics. And we can understand and explain service innovation as various manipulations of those.
What is a service?
Around the turn of the century, the definition of services was evolving as we see in Figure 1.
But let’s start this article by looking at how we can categorise what a service is. That why we can agree we’re talking about the same things before we go to the next step. We can categorise service by taxonomy or functionality.
Categorising Services by taxonomy
One way of categorising services is through taxonomy. In Figure 2 I show the 21 level-1 NACE classifications of economic output in the EU.
All but 4 – the ones in blue – relate to service. You could deduce from this that service makes up a large proportion of economic activity – they are eating the world.
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 3.
Healthcare, for example, is a people processing service. It is tangible actions – nurses and surgeons physically doing something – on people (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.
You might notice that 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).
We typically define services in relation to goods. That’s quite natural as goods are usually tangible objects that we can readily understand – a book, a car, a building. Even intangible digital goods, such as an MP3 song or a Kindle book, are still conceptually tangible to us given their relation to previous tangible goods.
It was in the ’80s when researchers started taking a deeper look at services. And 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 it was they who cemented the notion of the IHIP unique features of services. Where IHIP is an acronym for intangibility, heterogeneity, inseparability and perishability (see. Figure 4).
Over the years IHIP has evolved into what marketers see as 5 attributes that all (just about) begin with the letter I (Figure 5). Inseparability splits into inseparable and involvement; heterogeneity becomes inconsistent, and perishability becomes inventory.
The service of cutting hair could be described in 5Is terms as:
- 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
But this gives a fairly negative view of service (compared to goods). And in 2004 some researchers were pointing this out.
Do the 5 Is apply for all services?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
Goods are seen as nice and conforming. You can make many of the same things, and do that away from the customer, storing them until needed. You don’t need the customer to be involved apart from maybe in the initial focus groups to see if your new product will sell. Wouldn’t it be great if services were the same? Well, companies try. 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.
They found that the 5Is were not the all-encompassing answer many marketers wanted to believe. You can see their results in Figure 6.
What do the results tell us? Well only in people processing services did the attributes hold. But even there intangibility is misleading. It was similarly misleading for possession processing but held for mental and information processing services.
Inconsistency is the big loser. Many service providers 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.
So now we can see that the 5Is have to be taken with a pinch of salt. But some other researchers went further to point out they may be positives.
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. The results of which you can see in Figure 7 (I have updated slightly to use the 5 Is terms instead of IHIP).
The inverted implications are particularly interesting:
- Intangibility – “unless tangibility has a marketing advantage, it should be reduced or eliminated if possible”
- Inconsistency – “customisation rather than standardisation”
- Inseparability/Involvement – “maximise consumer involvement in value creation”
- Inventory – “reduce inventory and maximise service flows”
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
It’s not time to abandon the 5Is. They are valid for commodity goods and also for commodity services, such as McDonalds. And I don’t mean that in a bad way. You don’t go to McDonalds for the service, you go for the low cost and consistency. We will look at the goods-service continuum shortly and you would see MacDonalds at the goods with service attached end of the continuum. From a service-dominant logic perspective, McDonalds gets you quick food with limited need to think.
Moving on from the 5Is, there are some other attributes we can link to service – the 4Ss.
The 4 S’s of Intangibles – Sunk cost, Spillover, Scalable, Synergies
Haskel and Westlake were concerned that economic reporting doesn’t capture intangibles and that a large part of the economy is today made up of that. In their 2018 book “Capitalism without Capital“, they highlight 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.
The last set of attributes I want to explore 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 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 more known is Booms & Bitner‘s (1981) work. In that they proposed 3 more P’s to arrive ata services marketing mix in Figure 9.
These additional Ps are people, physical evidence and process. And Kotler added an 8th – Performance – in Marketing Management. Which 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. These link nicely back to the discussions above on the 5Is.
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 10.
There is one thing that comes through as you think about goods being good and then having to deal with services. And that is quite often it is hard to determine if something is a pure service or a pure good. This leads us to the goods-service continuum.
The Goods-Service Continuum
There are many things that sit somewhere between being a pure product or pure service. MacDonalds, for example, is a service that behaves closely to a goods. Palmer & Cole’s Services Marketing: Principles & Practice identified a continuum between goods and services (see Figure 11).
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 (beyond being fed by tube in intensive care). 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.
So we can say that it is not goods versus services as there are many things in-between. What if we were to switch things on their heads. That is, if we were to start at the other end of the continuum. Where we start with service and see where goods fit in. That brings us to the world of service-dominant logic.
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 goods-dominant logic.
But this is not how service appears to work. To address this, Vargo and Lusch (2004) started developing Service-Dominant Logic (SDL) and Grönroos (2006) Service Logic (SL). Grönroos identifies SL as an evolution of SDL.
Lush & Vargo define a service as following.
the application of specialized competences (knowledge and skills) through deeds, processes, and performances for the benefit of another entity or the entity itselfLush & Vargo () “”
There are two aspects relevant to this discussion. Firstly in service logic, only a value proposition can be offered. The customer and provider (for want of better words in this article) work together to co-generate value during the service delivery. So inseparability is impossible and involvement is required.
And secondly, goods are a distribution mechanism of service. This is explained by thinking of goods as freezing skills and competence (the service) of the provider. And easiest thought of as how a CD freezes a band’s performance so it can be distributed from the recording studio to your home.
I have more on service-dominant logic in this article journey. Let’s complete our exploration by looking at some modern considerations.
Defining a service
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 “Describing a Service (to help discover innovations)” 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.
So we’ve broken the myth that it is goods vs services. And seen that the 5Is of services, originally defining services as a poor relative of goods, are actually good attributes that we should be striving for – assuming we are not at the far left of the goods-service continuum.
We also saw that we can take a service first view of the world. And that is one in which goods are distribution mechanism for service. For example, the CD freezes and transports a band’s performance in a recording studio to your living room. Or we could also give the example of bottled water freezing the experience of drinking at the well and distributes it where you want it. This service-dominant logic plays a large part in fixing the innovation problem.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
The last part of the article gave our definition of service in terms of it being a proposed solution to a customer problem. That it was a series of more or less intangible activities normally involving interactions with aspects of the service provider. And then we saw that we can make the definition more formal through sets of competencies and characteristics.