Service is eating the world – but what are Services?

activities activities continuum customer economy intangible interactions logic marketing ownership problem process 5 Is, 4 Ss, 8 Ps provider value

The Big Picture…

Traditionally we have defined 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 so-called 5Is). And in doing so, we introduce a goods vs services mentality.

However, to borrow a phrase, Service is eating the world. So, they can’t be poor relatives. What we can observe is:

  • Not all services have all 5 Is
  • These 5Is can be advantageous – inventory is expensive, inconsistent really mean customisable, etc.
  • There is a continuum between goods and services rather than goods vs services

What if we turn tradition around. And start from service to find where goods sit. That is to say, everything is a service. And what we find is that goods are distribution mechanisms for service that support self-service.

Service can be defined as “the application of specialized competences (knowledge and skills) through deeds, processes, and performances for the benefit of another entity or the entity itself”. Or more precise we can use Grönroos definition:

Grönroos’ definition of services

And, slightly more formally, we can define a service in terms of integrations between sets of competencies and characteristics. Innovation comes from new or rewired integrations.

Gallouj & Weinstein model of a service as four characteristics

Implications

Service first thinking is a shift. But a necessary one that better explains the world. And unlocks a better definition of value. Which in turn drives a more actionable understanding of innovation. Value is about progress beneficiaries could and do make. That is co-created during use, rather than embedded by manufacturers and exchanged. And whose amount can only be determined by the beneficiary.

Understanding there is co-creation by beneficiary and other actors resources integrate to work together helps explain many emerging theories/approaches – design thinking, Agile, Lean approaches, Blue Ocean, Job to be done, to name a few. And how enterprises should work with other enterprises (eg consultancies). It also leads us to understand value can be co-destructed.

And service-first thinking, with an implication of service-service continuum and “making progress” tackles the ”ancient” problem of marketing myopia. We are encouraged to abstract and see many different solutions. As well as understand the “shift” to service economy.

The Idea

Service(s) get a bad reputation in the literature. Anyone taking a marketing/sales course or an MBA gets led down this doctrine: goods are good, services are problematic. And this comes from taking a goods-first position. From which we define service in a comparative way. 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 so-called 5Is). In doing so, we introduce a goods vs services mentality.

However, we’ll see that these 5Is are not always applicable. And that they actually can be advantageous features to adopt and use.

Not only that, we’ll see that some goods have services and some services rely on goods. So we evolve our thinking to there being a continuum between goods and service.

But, what happens if we take a service-first perspective? That is to say we define service and attempt to see how goods fit in. Well, we end up with a view where everything is a service. And goods are a way of freezing service for distribution, typically for use in self-service.

And, from there we can formalise our view of service and how it works as a set of interactions between various characteristics.

Let’s start with exploring the traditional perspective.

What are services?

Around the turn of the century, the definition of services was evolving as we see in Figure 1.

Figure 1: How the definition of Services has evolved over the years

You can see the early definitions are anchored in physical products. And we move through the idea that service is an activity/process. Eventually landing with Grönroos who saw processes, activities, interactions and a place for goods. We’ll come back to this definition later.

Our first step should bring us to a broad agreement of what a service is. And that means we should look at how the wider world defines them. We can categorise service by taxonomy or functionality.

Taxonomy

One way of categorising services is through taxonomy – grouping them together under key words. And there are many ways to do that. Here, in Figure 2, I show the taxonomy that economists/statisticians across the EU use.

Figure 2: Service Categories – as defined by the EU

These are the EU’s 21 level-1 NACE classifications of economic output. And all but 4 relate to service. You could deduce from this that service makes up a large proportion of economic activity – they are eating the world.

A less number-crunching way of categorising service is to do so functionally.

Functionality

We can define and categorise service by what it acts upon. As well as what those actions are. That’s to say are the actions 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.

Figure 3: Service Categories – Wirtz & Lovelock’s functional view

A service can comprise of tangible or intangible actions. And can act upon people or posessions.

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

So now we have some way of thinking about service through categorisation. Now we can try and define service actually is. And we’ll start with the traditional way of comparing to goods.

What are Services – a goods-first perspective

Let’s take the traditional view of services. 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.

With that in mind, the first approach to dealing with services identified they have four unique features.

IHIP unique features

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).

Figure 4: The IHIP unique features of services

Remember we are starting from the position that goods are understandable. And so what are the problems that service introduces. You can see that directly in table heading in Figure 4: “resulting marketing problems”.

Very closely related to IHIP are the, now, more commonly discussed 5 Is.

5 Is of Services

Over the years IHIP has evolved into what marketers see as 5 features that all (just about) begin with the letter I (Figure 5). Where Inseparability splits into inseparable and involvement; heterogeneity becomes inconsistent, and perishability becomes inventory.

Figure 5: The 5 Is of services

The service of cutting hair could be described in 5I 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

Notice how these words are fairly negative. Implying that service is a poor, or problematic, relation to goods. And it gets “worse”. Our simple 4 Ps of the marketing mix needs to be extended.

4, 7 or 8 P’s of the Services Marketing Mix

Back in 1960, McCarthy identified the simple 4 P’s of the product marketing mix. Firms need to address these 4 marketing activities to make a (product) sale. And these are:

  • product
  • price
  • place
  • promotion

The first P, product, is usually all about the goods (and service is seen as an output). Whereas the other three Ps are all about making a sale. And so we can say the focus of the 4 Ps is about value-exchange. Which is the basis of considering the world as goods first (also known as goods-dominant logic).

However, less well known are the many criticisms, along with proposed alterations and additions to the 4 Ps.

Extending the mix

And most of those pop up due to thinking about services. Perhaps the best known are Booms & Bitner‘s (1981) work and Kottler’s.

Figure 6: The 7 (or 8) Ps of the traditional service marketing mix

Booms & Bitner say an additional 3 Ps are needed to cover services:

  • people
  • physical evidence
  • process.

People refers to the employees of the service provider with whom the customer interacts. Physical Evidence reflects, amongst other things, the environment in which the service takes place or objects required to perform the service. And process is the series of activities and order they are carried out. Now we’re starting to walk down the definitions of service we saw back in Figure 1.

And Kotler, in Marketing Management, adds an 8th P of performance. Which relates to how well the company’s service competes in the marketplace.

I dig deeper into the marketing mix, the various objections and proposed extensions, in How many Ps in the Marketing Mix. Including my view.

But, for this article we can see that the clear 4P marketing mix hasto be extended/updated to deal with service.

One thing the 5 Is tell us is that services are intangibles. So we can look at what that means.

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 those. They end up pointing out that intangibles have 4 economic attributes:

  • scalable
  • synergies
  • sunk costs
  • spillover
Figure 7: The 4 Ss of Services

Scalability should be a positive feature. The cost of an additional eBook, for example, is negligible to the eBook service provider. Whereas services have greater sunk costs – costs that you cannot expect to recover – than goods/manufacturing. We’re talking costs such as training, goodwill, processes, personnel etc.

And they saw that investing in intangibles creates assets competitors can use. For example, Uber established a proven market and a way of working (algorithm, gig economy, etc.). And competitors, like Lyft, were able to establish themselves easier due that. This is spillover.

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.

You might already be thinking not all the above is strictly true. I’ll come back to that when we look at goods-service continuum. But first, should we blindly trust the 5 Is?

Challenging the conventional view

So, we’ve seen that starting from goods gives a relatively negative view of services. We have the 5 Is, and need to extend the marketing mix. Of course, we could challenge this. Perhaps the real marketing mix is the “extended” view. And that in the case of just goods, there are only 4 Ps in the mix that are relevant.

When it comes to the 5Is, researchers have been looking in more depth at the realities.

Do the 5 Is apply for all services?

The 5Is give a quite nice and crisp explanation as to why, from a goods-first perspective, services are different from goods. But as we’ll see shortly, such a clear distinction between goods vs service doesn’t really exist. And as we’ll look at now, even these 5Is start to break down when we look at reality.

Wouldn’t it be great if services were the same as goods? Well, several service companies try. For example in minimising inconsistencies.  Staff are trained; 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.

Customer involvement is minimised in fast food restaurants to picking from pre-determined items. And the focus is on the tangible food items – you don’t go for the quality of service. Whilst the service cannot be inventorised, the goods behind them can. And inseperability is maximised to the touch point of order and collect.

Despite this, secret menus – requiring higher degrees of customer involvement, inconsistency and inseparability – emerge. And we all have stories where people in firms have gone beyond what was expected (their training and work processes).

Dispelling the 5I myths – not all services have 5Is

In “Wither Services Marketing” Lovelock and Gummesson look at how realistic the 5 Is are for different categories of services. And they chose to categorise service based on processing type, as we saw earlier. Their categories are: people, possessions, mental-stimulus, or information processing.

They found, see Figure 8, that the 5Is are not the blanket answer many marketers wanted to believe.

Figure 8: Realising the 5 Is are not applicable to all services

What do the results tell us? Well only in people processing services did the 5Is kind of 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 across all processing categories. Where most services can often be standardised. With the exception of people processing, since that involves the most involvement.

So we should not take the 5Is as the definitive truths about the problems with service we are led to believe. In fact, the 5Is could be positive features.

Aren’t these 5 I’s good features?

Vargo & Lush went one step further. As they started discovering service-dominant logic they looked at the 5I. And in their “The Four Service Marketing Myths” paper they dispel the myths. You can see their results in Figure 9 (I have updated slightly to use the 5 Is terms instead of IHIP).

Figure 9: Benefits of the 5 Is of services

And we can see not only do they dispel the myth, they also give some perspective and provide an inverted implication. For example on intangibility, they note that services often have tangible results. So consumers buy service even when a tangible product is involved. And that intangibles, such as brand image are more important than the goods. The inverted implication is that tangibility should be reduced or eliminated unless it has a marketing advantage.

Here’s all the inverted implications:

  • 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”

Let’s look at these in a little more depth.

Inconsistency => Customisation

We can interpret Inconsistency, as customisation. Isn’t that a good feature for relationship building.

It also helps solve a challenge that value propositions – which are he only things an enterprise can offer – are broad in order to appeal to as many beneficiaries as possible. But value is (and can only be) determined by each individual beneficiary. Without customisation of broad value proposition we potentially lose value creation/determination.

Involvement/Inseparability => Relational / Value co-creation

If you want to build relationships with customers then involvement is something you really want. And it turns out that involvement is something you really want to build in order to understand value (and therefore innovation). Since value is really co-created and that requires, mostly, interactions between all the actors involved in the service provision. That is to say, involvement.

Inventory => Costly / Reduced Flexibility

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

[Add later: Service-Dominant Logic and Supply Chain Management: Are We There Yet? ?]


Intangibility => Scalability

We’ve already briefly looked at this. Consider digital goods – eBooks, music or films etc. These are intangibles. Which should make them problematic under the normal interpretation of the 5 Is. But, as an intangible, they are readily scalable. It is much cheaper to create the next instance of an intangible than a tangible. Therefore tangibility creates a limiting factor on distribution. So if you run Amazon, Netflix or Spotify, intangibility (scalability) is a good thing.

And, as Lush & Vargo point out, services can have tangibles. Which brings us to an evolution in thinking. We don’t live in a goods vs service world. Some goods are wrapped in or come with service. And some services rely on goods. We have a continuum.

The Goods-Service Continuum – more realistic view of what are services

There are many examples that sit between being a pure product or pure service. MacDonalds, for example, is a service that behaves as close as it can to selling goods. And in the other way, Rolls Royce prefers to sell a time in the air service rather than airplane engines (a process named as servitization).

How do we visualise this in our goods-first world? We use Palmer & Cole’s goods-service continuum (sometimes called product-service). They defined this continuum in Services Marketing: Principles & Practice. And I give an example around eating in Figure 10.

Figure 10: Goods (marketing speak for products and services) live on a continuum between Products and Services

On the tangible dominant part (the left) we can think of buying food at the supermarket, taking it home, and cooking yourself. And on the intangible dominant side (far right) is a pure service. The only example I can think of here is being fed by tube in intensive care).

But, importantly, there are some points in between on the continuum.

Tangible product with supporting service

Think of that all-you-can-eat buffet you had for lunch. A good buffet is defined by its wide range of food (tangible products). But it also has some supporting services: restocking the buffet, cleaning vacated tables etc.

Hybrid offers

In the afternoon you grab a coffee from the artisanal coffee bar on the corner. Often you ask the barista which beans to have today and the best way to have those particular beans brewed. You have moved right on the continuum. It is a mix of service (the application of the barista’s skills and competence) and goods (the coffee) you are experiencing.

Major service with supporting products

And finally, have dinner in that new 5-star restaurant that’s just opened. 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. Another step right on the continuum.

The goods-service continuum is a step in the right direction. But what if we think about the next evolution. What if we were to start with defining service. And see where goods fit in. Welcome to the world of service-dominant logic.

What are Services – a service-first perspective

Up until now, we’ve looked at a world where goods come first. We can call this a goods-dominant logic. A world where we know what a goods is, and define service based on that. Which leads to services looking like the bad brother/sister. Although we took a more evolved view with the goods-service continuum. Which recognises we don’t live in a strict goods vs service world. Rather some services use goods, and some goods come with services. That helps us understand why the 5Is is not the absolute truth. And why the 4Ps of the standard marketing mix is perhaps a subset of the real marketing mix, applicable if you only have a goods.

But is there another evolution we could take? What if we start our observation as a service-first world. That is, to define what a service is. And then define how goods fit into that definition.

It leads us to the world of Vargo & Lush’s service-dominant logic (SDL) and Grönroos’ service logic (SL). And here we see value as co-created in use, rather than created by manufacturers and exchanged at points of sale.

There’s a lot to say about these service first logics (e.g. see Making Service-Dominant Logic more Approachable), and I’ll try and keep it short here, by restricting to look at the definition of service.

What are services?

In our old world, we defined a service in relation to goods. But how would we define service in a world where we start with service? Lush & Vargo define 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

Lush & Vargo

What we can immediately see is the definition is full of action. We are “applying” something through “deeds, processes and performances” rather than acquiring. This leads us to understanding that value is created during use rather than embedded and exchanged. And it is about knowledge and skills rather than an object (we’ll later define this as operant resource – those that do things – rather than operand – those that have things done to them; and that these operant resources are the source of strategic benefit).

But it is Grönroos’ definition that I prefer – if we reorder it a little. I feel it helps us understand the role of goods a little better. You can see how I look at this in Figure 11.

Figure 11: Grönroos’ (and my preferred) definition of services

Let’s unpack these 3 groupings a little.

…solutions to customer problems

First and foremost, services are provided as solutions to customer problems. This is quite fundamental. It tells us we need to identify both problems that a customer has and solutions. Of course, 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.

This part of the definition really reaches the heart of defining value (and subsequently innovation). When I look at these we see it is not just solving customers problems. It is about helping a beneficiary make progress with some aspect of their life. And that progress is in two parts: functional and non-functional. Where we can see functional progress as solving problems / getting a job done and/or reducing hassles. And non-functional progress in terms of speed, safety, feeling good etc.

…activities in interactions

Our old logic sees one set of entities embedding value into a product through manufacturing. And then that value is exchanged for cash to the end customer. The new owner of the value then uses up that value. You eat a chocolate bar, or wear down engine components when you drive the car.

But, our service-first approach sees a series of activities. Those are mostly intangible. And normally take place in interactions between the customer and some combination of service provider elements.

Think of getting your car repaired. You interact with the garage’s employees when you drop off and pick up your car (some activities of the service). But rarely do you interact with the mechanic whilst they are repairing the car (additional activities of the service). Most of those activities are intangible. But you end up with a tangible – the serviced car.

Value is seen as being co-created during the use/act of the service. Back to our car service example: you need to discuss what is wrong/what you need. The garage will suggest a course of action. And when you pick up the car later, there might be further discussion on things to help you or further work needed later.

It’s interesting to note that where there is value co-creation, there can also be value co-destruction.

And finally, those actions can take place with service provider elements. What are they? Well, keep reading as this is where goods get involved.

…using service provider elements

Now we start getting near how we view goods in our service-dominant thinking. The interactions in the activities above are with service provider elements in the definition. And a good, but simplistic, view is that this means employees. But there is more. As you can see in my updated view of the services marketing triangle.

Updated Service Marketing Triagle taking account of Employee being wider than people to include physical resources, goods and systems of the provider
Figure 12: The updated Service Marketing Triangle

We could be interacting with the systems of the provider. For example we’re all mostly comfortable with on-line banking. That’s a system we are using (web site, mobile app etc) rather than employees. And becoming more common are systems emulating employees – chatbots, artificial intelligence etc.

Or we might be interacting with physical resources of the service provider. The Voi electric scooter you “hire” to make a short urban commute, or the train you jump on to travel.

And finally, we can say we might interact with goods of the service provider. What’s the difference between physical resources and goods? Good question.

Relationship to Goods

So goods, in our evolved view of service, are service provider elements. That a beneficiary may use to help them make progress in some aspect of their life. Which is the same as physical resources, systems and employees of the service provider.

All are means for the beneficiary engaging skills and competence. Where systems, physical resources and goods capture those in specific ways.

And, further, goods (as well as physical resources) are a distribution mechanism of service. They freeze skills and competence allowing them to be distributed in time and space and unfrozen when needed. This also imply an increasing level of self service as we move along from engaging employees, systems, physical resources/goods. And goods implies ownership (or perhaps better put: availability at the cost of flexibility)

Lets look at this in the context of getting a hole put in your wall for a picture hook.

Full service

You could ask a builder to come and put the hole in your wall. In such a case you are interacting with an employee of the service provider. You don’t need any physical resources or goods yourself. And it doesn’t matter to you how the builder does this. You are relying on the builder’s skills and competence. What you bring to the service is your design skills (where you want the picture to hang).

Hybrid service

Or you could hire a drill and put the hole in yourself. Now you are making use of a service provider’s physical resources (which is capturing skills and competence on how to make a hole). But you are performing self-service when making the hole.

And now you need to bring some additional skills and competence to the service. Such as picking the right tool, being able to use it, and how to avoid drilling through electric cables/pipes in the wall.

Luckily, you can expect the hire service to help you pick the right tool (admittedly this is not so hard in this very simplified example; few would pick a hammer to drill a hole, but complexity rises rapidly). And you also get access to the latest technology (the latest skills and competence on hole making). But you can only hire for a limited time and can’t start the hire unless the the hire service is open.

Self Service

Finally, rather than hiring the drill you could own it. Now you are using a goods of a service provider. Just like in hiring the goods captures skills and competence of the provider (how to make a hole).

The benefit of the goods is availability. You can drill a hole anytime you want. No waiting for a builder to be available. Or getting caught by the hire place being closed when you need it.

But the self service aspect is higher. You have limited advice on if your tool is the right one for this type of hole/wall. And you limit your access to the latest technology (assuming you are not going to buy a new hole making machine each time the progress you want to make is a hole!)

You could argue that there is really a service-service continuum.

Before I finish, we can take our definition and make it a little more formal – a little less dependent on words.

Formalising what are services – 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.

Figure 16: Lists of service characteristics acting in a service

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.

Wrapping Up

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 those elements… 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.

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