Integral Logistics Management — Operations Management and Supply Chain Management Within and Across Companies

1.1.2 Service and Servitization — Service Orientation in the Classical Industry

Intended learning outcomes: Present terms of the service domain such as service, customer service, service in the originary sense, servitization. Differentiate between a (primary, or core) product, a product in a broad sense, and a product in the most comprehensive sense.

A service is, according to [MeWe18], a performance of official or professional duties, the act, fact, or means of serving.

The definition of service refers to the beneficiary of the service, generally referred to in the commercial world as the customer. With firms, service often means customer support.

Customer service or customer support is the ability of a company to address the needs, inquiries, and requests from customers ([ASCM22]).

A service in the originary sense is a process involving a service object, that is, an object belonging to the customer that must be brought together with the provider of the service (or vice versa), potentially along with additional customer input.

In many cases, the object, thus the recipient of the service is the customer himself. In other cases, it is technical support and maintenance of machines or plants. Further examples include services in relation to information products, such as correction of software.

Interestingly, [Levi81] points out that “distinguishing between companies according to whether they market services or goods has only limited utility”. The author suggests that it is more useful to speak instead of intangibles and tangibles. He states that “everybody sells intangibles in the marketplace, no matter what is produced in the factory.” Remarkably, based on the above mentioned definitions goods, products, and materials can be either tangible or intangible. On the other hand, the author notes that often “intangible products must be tangibilized. Hotels wrap their drinking glasses in fresh bags or film, put on the toilet seat a sanitized paper band, and neatly shape the end piece of the toilet tissue into a fresh-looking arrowhead”. This is particularly important when an otherwise intangible service is part of a more comprehensive service (e.g. a guest's stay in a hotel) and this specific (partial) service can be provided earlier, i.e. before the customer uses the (entire) service.

As [Levi81] states, “tangible products differ in that they can usually, or to some degree, be directly experienced — seen, touched, smelled, or tasted, as well as tested”. However, for capital goods in particular, tangibility is not enough. As Figure shows, the decisive factor influencing the purchase is rather the holistic experience.

Fig.         The product in its holistic experience.

A product, in a broad sense, is a (primary, or core) product along with the services provided, where the consumer sees the two as a unit.

For investment goods, additional services increasingly constitute the key sales argument. Here, “services provided” could mean installation instructions or a user manual, training information, or the promise of future (after-sales) services such as maintenance and repairs.

Servitization is an artificial term for the process of systematically designing services that entail considerable additional revenues. Such a design leads to what is called a product-service system. See here Section 1.1.4.

In buyer's markets, individualization of products to customers' requirements and personali­zed production become more and more important. In particular, an ETO (“engineer-to-order”) production environment leads to a service focus and to value co-creation. See here Section 7.4. With a product variety subject to (changing) customer specification (e.g. for the “haute couture” sector of the fashion industry), repeated input from the customer is a key characteristic of the production process. Trying on a half-finished dress is actually a service process in the original sense, i.e. it needs ongoing intensive contact with the beneficiary of the service. It even offers an opportunity for the specification of the product (the dress) to be changed. Then, the quality of such services, or the processes “around the product,” can become as much or even more important than the quality of the core product.

A product, in the most comprehensive sense, comprises the (primary, or core) product, the services provided, and the company itself, with its image and reputation.

Here, the consumer sees all three as a unit. An example is the concept of Total Care in the insurance branch. The aim is to give the customer the idea that the quality of the company, that is of the organization as a whole will provide all-encompassing care. This "all about the customer" process builds trust. Image and reputation of a company are a consequence of stakeholder opinions which, according to Figure 1 in the introduction, include business partners, employees, shareholders, society, environment and nature.

Small exercise: To get more informations on the holistic experience of a product, and the degree of its compehensiveness roll over the terms.

Course section 1.1: Subsections and their intended learning outcomes