Service Transition and Product Differentiation

Finding the Right Spot on the Continuum

Introduction

  • The objective is to describe and further develop existing models of service transition, focusing on how companies position themselves and move along the goods-to-services continuum.
  • The study concludes that service transition can be profitable for manufacturing firms, provided they avoid mismatches between organizational arrangements and their offerings.
  • Contributions of the study:
    • Providing an overview of companies' positions on the goods-to-services continuum.
    • Introducing movements on the continuum.
    • Suggesting service development as a potential engine for renewal.
    • Providing empirical evidence on the relationship between positions on the continuum and profit margins.

Product and Service Continuum

  • The study investigates companies' positions on the goods-to-services continuum, movements on the continuum, service development as an engine of renewal, and the relationship between firms' positions and profit margins

Positions on the Goods-to-Services Continuum

  • Chase (1981):
    • Managing a quasi-manufacturing organization.
    • Proffering mixed services.
    • Pure services.
    • The company is either in a goods or services business.
  • Vandermerwe and Rada (1988):
    • Goods and services are combined in offerings.
    • Offerings are complex bundles of goods, services, information, support, and self-service elements.
  • Bowen et al. (1989):
    • Customer service is a component of the product.
    • Service is an element of product strategy.
    • Service-oriented goals are incorporated into the firm strategy.
    • Service organization arrangements are adopted.
  • Martin and Horne (1992):
    • Core goods with accompanying services.
    • Pure goods.
  • Mathieu (2001a):
    • Core services with accompanying goods.
    • Pure services.
  • Davies (2003):
    • Customer services (interactions between seller and buyer).
    • Product services (support of goods).
    • Service as a product (services independent of the company's goods).
  • Oliva and Kallenberg (2003):
    • Manufacturing.
    • Systems integration.
    • Integrated solutions in which services are added to systems.
    • Operational services and intermediary services.
  • Gebauer (2008), Gebauer et al. (2010):
    • Consolidating product-related services (services related to goods).
    • Entering the installed base service market.
    • Expanding to relationship-based services or expanding to process-centered services.
    • Taking over end-users' operation.
    • After-sales service providers concentrate on basic services for the installed base.
    • Customer support services mainly include maintenance services.
    • Development partners provide professional R&D-oriented services such as development, design, and construction services.
    • Outsourcing partners offer operational services.

The Goods/Services Continuum

  • Target Market
  • Product
    • Product idea
    • Brand
    • Package
    • Warranty: None, limited, full, extended
    • Features
    • Benefits
    • Quality level
    • Accessories
    • Installation
    • Instruction
    • Product line
  • Place
  • Promotion
  • Price
  • Type of Brand: Individual or family, Manufacturer or dealer
  • Protection
  • Promotion
  • Enhancement

Service Transition: Finding the Right Position

  • Position A: Focusing on core goods
    • Description: Focus on providing goods, with services seen as a necessary cost for selling goods.
    • Triggers: New products from competitors, customer complaints.
    • Goals: Introduce new products, improve efficiency, quality, and delivery time.
    • Actions: Excel in product development and manufacturing, introduce services to increase sales of goods.
  • Position B: Consolidating product-related services
    • Description: Services are an important ingredient to increase customer satisfaction and are consolidated within a single organization.
    • Triggers: Competition, customer satisfaction.
    • Goals: Tap the revenues in the service market.
    • Actions: Move services under one roof. Monitor the effectiveness and efficiency of service delivery. Add services to support quality initiative.
  • Position C: Entering the installed base (IB) service market
    • Description: Services are a strategy to increase profits. Structures and processes are set up to realize the potential of services.
    • Triggers: Profitability potential, competition, change in management.
    • Actions: Definition and analysis of service market. Creation of a separate organization to market and deliver services. Achieve cost advantage. Creation of infrastructure to respond to local service demands.
  • Position D: Expanding to relationship-based or process-centered services
    • Description: A change from transactions to relationships and from value propositions based on the product to the end-user process.
    • Triggers: Customer requests. Utilization of product development skills. Utilization of service infrastructure.
    • Goals: Increase utilization of service infrastructure. Utilization of product development skills.
    • Actions: Develop consulting capability. Assume operating risk. Create new distribution network.
  • Position E: Taking over end-users' operation
    • Description: Organizations take over the entire responsibility of parts of the customer operations.
    • Triggers: A long track record as a service provider.
    • Goals: To move downstream in the supply chain.
    • Actions: Establishing systems for managing long-term establishments within customer operations. Development of a new capability. Expand to include other manufacturers.

What is a Product?

  • Product: An idea, a physical entity (a good), a service, or any combination of the three that is an element of exchange to satisfy individual or business objectives.

Types of Products

  • Goods: Physical products with form and substance.
  • Services: Non-physical products usually involving performance.
  • Consumer Products: Those used by consumers for their own use and satisfaction.
  • Business Products: Those used in the running of a business or in the manufacture of products for resale.

The Good/Services Continuum

  • Examples:
    • Mostly Goods: Canned foods, Ready-made clothes, Automobiles, Carpets
    • Mostly Services: Restaurant meals, Repairs (auto, house), Air travel, Insurance, Consulting, Teaching

Product Differentiation

  • Product Differentiation: Exists when a firm’s offerings differ or are perceived to differ from those of competing firms on any attribute, including price.

Goods and Services

  • Goods: Physical products.
  • Services: Nonphysical products.

Differences in Goods and Services

  • Differences:
    • Where produced (storing and transporting)
    • Tangibility
    • When produced relative to when consumed
    • Balancing supply and demand
    • Contact with customer by producer of product

Characteristics and Strategies for Services

  • Service Characteristic - Service Strategy
    • Intangible - Associate service with something tangible
    • Perishable - Manage demand to utilize supply
    • Inseparable - Capitalize advantages of person providing service
    • Variable - Standardize service delivery as much as possible

Product Classes

  • Two broad classes – consumer products – business products
  • Classes help in planning marketing mix needed
  • Based on how the customer views the product
    • how consumers think about and shop for products
    • how business/organizational buyers think about products and how they'll be used

Consumer and Business Products

  • Consumer Products: Products that are purchased by consumers for their own personal use.
  • Business Products: Products purchased by a firm or organization for its own use.

Types of Consumer Products

  • Convenience Products
  • Shopping Products
  • Specialty Products

Types of Business Products

  • Capital Products
  • Production Products
  • Operational Products

Business Product Classes

  • Installations
  • Accessories
  • Raw materials
    • Farm products
    • Natural products
  • Components
    • Parts
    • Materials
  • Professional services
  • Supplies
    • Maintenance supplies
    • Repair supplies
    • Operating supplies

Product Components

  • Product Features
    • Quality
    • Design
    • Branding
    • Packaging
  • Service Features
    • Purchase services
    • Usage services