How does Service Innovation thinking differ from Product Innovation Thinking?

[very early draft]

Product versus Services Innovation Dominant Thinking (evolved from Vargo, Maglio and Akaka (2008))

Customer resistance

Customer resistance is the parallel to adoption. We see innovation as good and just need to diffuse it. Resistance, on the other hand, reflects customers hesitance to use an innovation. Ram and Sheth (1989) identify five barriers involved with resistance. Three of those are functional barriers: usage, value, risk; and two psychological barriers: tradition and image.

Figure: Barriers creating customer resistance, and strategies to overcome those barriers (Ram and Sheth (1987))

But we also need to make sure we don’t pick prejudices when thinking of services and customer resistance. A Finnish study [Laukkanen et al. (2007)] looked at why the mature generation were not using mobile banking. It is easy to assume using technology was putting them off. In reality technology was less of a problem, whereas fear of losing a PIN number or it getting into wrong hands was a stronger cause of the resistance.

My case study on Supermarket self-service checkouts – where you scan your own goods and pay – gives a great observable example. How many times do we observe long queues at the old serviced checkouts and relatively empty self-service? These customers are, perhaps amongst other things, resisting the innovation.

An example – self service checkouts


I’m sure the supermarkets are thinking this is a great idea. And indeed, product-dominated innovation thinking would lead you to think so. And, from a product innovation adoption perspective supermarkets have made the right steps. Yet still there is resistance. Why? Well, putting aside value in context and co-value creation for a moment, customers have a lot of values and beliefs. Here’s some challenges:

  • this is a cost saving for the store – customers can see this, but don’t see cheaper goods; we are being cheated.
  • less staff are needed – customers can be concerned about the welfare of the staff not needed any more.
  • people like interaction.
  • risk is transferred to the customer – customers start being treated as thieves by default. The machine starts shouting out “unexpected item in the bagging area”; extra security guards are added to watch you; in some places you need to show your receipt in order to leave; one UK supermarket start started treating its customers like this!
With Service Innovation you have to address additional factors such as customer resistance – we're looking at you here super market self-service checkouts! Share on X

To reduce customers’ resistance is going to require more work by supermarkets.

Ecosystem / Network of systems

The end-customer experience of a service will nearly always be an experience of a network of services (or an ecosystem). And so success of your service is dependent upon the experience of your ecosystem, and offering the ecosystem the customer is expecting.

Let’s take the simplest of ecosystems – a main service that the customer pays for. A pretty common case!

The 3rd party might be:

  • a credit card company, or
  • an organisation behind a “faster payment” method such as Swish in Sweden (using mobile phone numbers as proxies to bank accounts), or
  • m-pesa micro payments over mobile phones in Africa/India, or
  • an invoicing/credit providing company such a Klarna, or
  • PayPal, or….

Your choice, or choices, of payment service(s) is a decision you make to add customer choice/convenience (value) to your service based also on the cost/convenience (value) they provide you. Customers will judge your service on the success of the payment service(s) you provide, and how valuable they are to them.

And remember, payment is a simple example!

Inheriting responsibility from ecosystem

Your service can inherit responsibilities for ecosystem services. But it’s really not clear why or when. For example, a postal courier service is unlikely to have to worry about its service reputation if the product it is carrying is of poor quality.

However, imagine you run a food delivery service, not associated with restaurants, and your customer becomes ill from some food delivered due to poor hygiene at the restaurant.  Does the customer blame the restaurant making the food or your delivery service?  In 2018, Danish/UK based food delivery service Just Eat attracted headlines such as “Just Eat listings include takeaways given zero ratings for hygiene“.   Where does Just Eat’s service start and stop? They deliver food.  Should they check the hygiene ratings too, or display them, or is it up to the customer to check that themselves?

Customer expectations from other markets/industries

In services innovation, more so than product innovation,

Continuous nature

Service dominated companies survive by constantly innovating their service offerings.  Successful companies need to:

  • react to the constantly changing services landscape
  • offer similar innovations that are successful in competitors
  • bring in new innovations themselves, either new to the world or new to market/industry (i.e. borrowed from other markets/industry)
  • accept some innovations will not overcome customer resistance and have to die
  • accept some innovations may not generate the co-value expected – the timing may be wrong, another innovation arrives and generates better co-value, customers are just not interested, or customers see issues in the innovation elsewhere and project it to your service, or…
  • implement processes, tools, IT that does not directly generate value itself, but reduces complexity of future innovations execution (implement api’s, or data cleansing as examples).
Figure 1: Service innovation is like climbing a mountain

I like to envisage service innovation as going up an infinite mountain (or really hiking up the the wonderful Swedish fjäll).  You know you want to go upwards, and you set off in an inspiring direction.  But you sometimes find your path is not the right one and you need to find another way.  Eventually you will make it to the top with a huge amount of experience behind you.

airline travel journey.

Co-value creation

Years ago we bought dedicated GPS devices (a product) for our cars that were loaded with expensive to buy maps. Using those devices we could quite efficiently navigate to unknown locations. Innovations came in the form of new versions of the product that we had to buy if you wanted access to the new functionality.

Then came along apps like Waze providing live traffic information and navigation on your smart phone as a service. It is a clear example of co-value generation. The users get value by having access to real-time traffic on their route. Waze gets value by using all of its users mobile phones providing traffic info.

Contextual value

Back to our supermarket self checkout example. The value to me as a customer is contextual. If I

  • am in a rush, have a small number of products then self-service might be convenient;
  • have a large trolley of goods it is unlikely to be of value.

If I was a supermarket owner, I would understand what context are my stores used in most, and then adjust for that; rather than blindly mass convert all stores to mostly self-checkout.

Over-time this context is likely to change, so it needs to be monitored and adjusted.


“You can’t manage what you can’t measure” is the often misquoted statement from Drucker that “If you can’t measure it, you can’t improve it”. Both are interesting to our discussion since product and service innovation thinking has different measures of success:

  • product innovation – how many units are sold
  • service innovation – how many customers are gained/retained

Of course profit is important in each case; but in services we sometimes defer questions on profit to a later date and go all in for gaining customer share. This measurement difference drives different behaviours, with service-dominant thinking driving focus on retaining/repeat custom at a greater frequency than product-dominant thinking.

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