We tend to experience the world as a product world. They are after all things we see and touch every day, and can easily describe. But our economies are increasingly service based.
It turns out that defining services is more complicated than defining products. Strap in, it is going to be an exciting ride through marketing, economics, delivery and logic.
- Traditionally services are separate from products (goods):
- 5 Is: they are intangible, inconsistent; require customer involvement; delivery is inseparable from consumption, and we can’t create an inventory
- 4 Ss: they have sunk costs, create spillovers, are more scalable, and benefit from synergies
- 4 to 8 Ps in the marketing mix: product, price, place and promotion; as well as people, physical evidence and process; and often performance
- But there is a continuum between goods and services, which blurs the above
- Services fulfil a job to be done for a customer. That is to say, services:
- are provided as solutions to customer problems
- are 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:
- physical resources or goods
- We need a new logic to describe roles, value generation and interactions related with services
- Value is generated in-use, sometimes in-context, and usually co-produced by customer and service provider
- A lot of services have no transfer of ownership (which also gives an insight into the sharing economy)
- we can’t treat products and services the same… Which implies we can’t innovate in services using (only) product innovation approaches
Banking, IT consultancy, Uber, restaurants, hairdressers, estate agents, education, healthcare, cinemas, concerts, Software as a Service, Spotify, Netflix…these are all examples of services.
But how do we define what a service actually is?
Let’s build our view of services by looking at:
- academic definitions
- economic and marketing attributes
- underlying logic
- job-to-be-done and renting assets
Way back in history no lesser than Adam Smith (author of 1776’s Wealth of Nations) saw services as unproductive labour. He viewed manufactured items that could be stored and exchanged for money as wealth generating. Whereas Services, which perish through use, could not contribute to wealth generation.
Zoom forwards to 2018. Now we find Haskell and Westlake’s Capitalism without Capital highlighting intangibles as a (large) hidden component of economies. Bill Gates’ review notes: “not enough people are paying attention to this economic trend“.
Defining a service
Around the turn of the century the definition of services was evolving as we see in Figure 1.
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 2.
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.
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.
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.
Let’s add some colour to this definition by looking at categorizing services.
Categorising Services by taxonomy
One way of categorising services is through taxonomy. In Figure 3 we see the 21 level-1 NACE classifications of economic output in EU. All but 4 relate to services.
As you can see services include supplying water, retail, transport, education and so on. We can also categorise by functionality.
Categorising Services by functionality
Our definition of services refers to mostly intangible (so tangible too) actions. Lovelock & Wirtz, in Services Marketing, use that as well as to what the action is applied- people or possessions – to identify 4 categories of services (see Figure 4).
Healthcare, for example, is a people processing service. It is tangible actions – nurses and surgeons physically doing something – to patients. Whereas Education, whilst acting on students, is a mental (intangible) rather than tangible action. Therefore, we categorise it as a mental-stimulus processing service. 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
We can further explore services through examining some attributes associated with them.
The 5 I’s of Services.
Marketers see services as having 5 attributes that all (just about) begin with the letter I.
Whilst most scholars see these 5 as always applicable to all services, Lovelock & Gummesson’ paper challenges that generalisation. We see the impact of that in the section on services as non-ownership.
Since a service is made of mostly intangible actions, it follows a service is (mostly) intangible. This has two consequences. Firstly, we cannot store services for future use, they are perishable; i.e. we cannot build up an inventory. Secondly, not being able to store and use a service later, means delivery and consumption must happen at the same time, i.e. services are inseperable. Imagine not being present when you hair is cut, or trying to store a haircut for later.
Products are remarkably consistent. Services, on the other hand, are inconsistent. Go to a restaurant on any two nights and the service/experience will most likely be different. It will depend upon many factors. The waiters, the chef, the other dinners, your own journey to the restaurant. 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 to steer performance. Despite those type of activities, services remain inconsistent.
Finally, have you been to a concert where the crowd was “in the moment” and it was the best concert ever? Or, sat at a comedy night where a disinterested crowd talked amongst themselves ruining the experience? Can you imagine getting a hair cut by just sitting down at the hairdresser/barber and not saying anything? This is involvement and is the fifth of the I’s.
There are also some economic attributes to explore.
The 4 S’s of Intangibles – Sunk cost, Spillover, Scalable, Synergies
Haskel and Westlake highlight 4 economic attributes that should be interesting to us. They are the 4 S’s.
Intangibles, and so services, have sunk costs – costs that you cannot expect to recover. Costs such as training, goodwill, processes, personnel etc. Unlike intangibles, services may also have investments. Such as the physical resources/goods required to deliver the service – the building healthcare is provided in, the scissors used to cut hair, or the computer servers behind the cloud.
The more intangibles your service deals with, the more scalable it becomes. As it is much cheaper to create the next instance of an intangible than a product. For example, costs of streaming a Netflix movie to one more user is minimal compared to making, shipping, and selling another DVD.
By carefully thinking through your service you can reposition sunk costs vs investments and increase scalability. A gig economy platform provides a quickly scalable service whilst pushing capital costs to others. And, we can use Amazon cloud instead of building our own data centre.
Talking of the gig economy, there we easily that third S- spillover – in action. Investing in a new service creates assets competitors can use. These could be information, a market place, a desirable design, or newly skilled workers. Uber 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.
The marketing mix also shows us some further attributes of services.
The 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 are the various marketing activities a firm needs to address to make a (product) sale.
21 years later, Booms & Bitner (1981) proposed 3 more P’s were needed for a services marketing mix. These are: Process, People, and Physical Evidence. 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. (We’ve seen these last two before).
In Marketing Management Kotler adds an 8th P – Performance. This refers to how well the company’s service competes in the market place.
So that’s 13 to 17 attributes (5 I’s + 4 S’s + 4-8 P’s) that give us a deeper insight into services. Next we look at why definitions of service become complicated: 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 8).
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.
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.
All our exploring so far leads us to the conclusion that services are not like products. They have a different logic.
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.
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 non ownership
Lovelock & Gummesson challenged the generalisation of 5 I’s being true for all services. It led them to propose a paradigm based around transfer of ownership, retail for example, and non ownership. This is quite relevant given the rise of the sharing economy.
Five categories of non ownership services are identified:
- Rented goods services
- Place and Space rental
- Labour and Expertise rental
- Physical facility and usage rental
- Network access and usage
A service may make use of a combination of these.
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.
Well, I promised you quite a ride. And I hope you enjoyed it. We looked at several areas that help us understand what services are. I showed my preferred (academic) definition.
Thoughout we saw the definition of services is constantly evolving. Initially scholars were looking to describe differences between service and product. We looked at various attributes services have: 5 I’s, 4 S’s and up to 8 P’s. But we find there is a continuum instead. Later work is looking at how to define services without this comparison. We can look at them as the type of actions they have and on what those add-ons act. We can think of, services as fulfilling a job-to-be-done. And we can think of services as being divided into ones where ownership is transferred and ones where the is no ownership transfer.
What I believe comes out of this discussion is that we need extended ways to look at services compared to products. Perhaps not in a services versus product way. But trying to apply product thinking to services does not work. In this article I extend this thinking to say that trying to innovate in services using (only) product innovation approaches does not work.