2006/08/28 11:15 Valerie Mathieu, "Services Strategies within the Manufacturing Sector", SEM 2006, HUT

Services Engineering and Management Summer School, Helsinki University of Technology, August 28-September 2

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Valerie Mathieu, Institut d-Administration des Enterprises d'Aix-en-Provence, Chair in Marketing, working in B2B

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Come from southern France, near the Riviera

• Background in marketing

Won't disconnect services marketing from services management

• When in services marketing and management, have to approach everything from the lens of a customer
• It's not the only lens, but it's important
• Important to understand what the client expects
• How the client behave, in a service position
• Specificity of service marketing

In services, everything happens between the service firm and the client

• The border between the two is the service experience
• Client consumes the service process
• Not just production, includes consumption and client satisfaction
• Experiences are different for different customers, each service experience is unique
• Each customer arrives with a set of different expectations
• e.g. we have expectations of this training experience
• The service experience is different for each of us, but is valuable

What is the client interaction / encounter / need with the service firm?

• The service firm is not real
• Have physical evidence of the service experience: store, table, equipment
• Front line employees
  • A teacher is a front line employee
  • Human contact, face-to-face, by phone, by mail
  • In a service transaction, may split off a part that is a non-human contact
  • There can be an alternative to human contact
• Challenge in the gap between the perceived service experience and the real one
• Not a distinction between hard and soft in services, there's a continuum

The challenge of a service marketer is to manage the service experience

• Not only to define and market a service product
• Manage, and be sure that the service experience will fit customers' expectations
• Levitt: The main difference between product and service is that product most think technically, and service must think humanistically
• Service marketing is not a challenge of design, it's a challenge of implementation, which is different from product marketing

Everything is a service?

• This is a popular approach in management
• This is dangerous
• From a marketing viewpoint, consider a market offering
  • Could be a solution, a benefit, a pursuit
  • There's a difference between the value offered by the company, and the benefit received by the customer
  • e.g. Why buy a car? To get to work, for pleasure?
• Can create a 2x2 comparing product and service
  • The company offering is expressed in a product or a service
  • The customer benefit in terms of product doesn't exist; it's always a service
  • The customer may be satisfied by a product or a servcie
  • e.g. travelling may be achieved by buying a car, or a subscription to a rental car
• Thus, everything is not a service

In selling a car, is delivery / speed a vehicle a service?

• Delivery is part of the design

Another classification of the service domains, where the company may deliver a service offering:

• Service firms: companies don't business with services, e.g. hotels, banks, consulting services, marketing services
• Internal services: departments dedicated to a production of success, e.g. HR, information technology
  • Some services can be hidden, difficult to realize or approach, yet essential
• Service associated: When the product is sold with services around it
  • May also be called product services
  • This is the focus of this lecture: services within a manufacturing company

Relationship between the three domains

• Internal services are being outsourced into service firms
• Service firms can provide B2C services to final customers and B2B services to companies
• B2C: can have services to people (e.g. health care), and services to objects (e.g. maintenance)
• B2B services:
  • Services to people, e.g. IT help desk, training desk
  • Services to objects, e.g. maintaining plants, physical maintenace
  • Services to the company: e.g. consulting services

Associated services:

• e.g. computer, hot line
• e.g. car with financing

How to explain the increase of services, added to products?

• e.g. a box of pasta, with a toll-free number, which is a service
• e.g. a car with an extended guarantee
• e.g. a computer with a package
• Leave the marketing environment and management environment, and look at ...
  • the economic data;
  • debate from sociology; and 
  • managerial explanations

Economic data:  

• Services denominate economies in employment, about 70%
• GNP is 80% to 85% service sector
• Conclude that the developed economies are service economies
• Two theses:
  • Post industrial economy: the service economy is the new stage of the economy
    • This is a natural evolution
  • Neo industrial economy
    • Can't challenge the data
    • They challenge the explanations of the data
    • Service economies are strong, as a result of the industrial sector
    • Without the industrial sector, the service sector is nothing
    • The puts industry as important
    • Finance, insurance, consulting are developing because the industrial economy is becoming globalized, more complex
• In France, Jean Gaudrey, what is challenge is not to oppose service to product, but to position at the borderline of service economy and product economy, and think about what can be done better
• What can be done with products, to package more value to deliver to the customer?

Sociology:

• Based on the meaning of consumption:  sociology asks, what does it mean to consume?
• Baudrillard: consumption is a question of language
  • When you buy a product or service, you say something.
  • Not a question of acquisition, or buying, it's to say something
• Consequence: material values are at the heart of consumption
  • Brand
  • Why do we buy Nike? Why do we buy Nike for our kids?
  • Branding is a material value in today's culture
• In B2C, human capital is an important immaterial value
  • Can create trust, engender loyalty
  • May link information and knowledge to human capital
• Thus consumption is a complex bundle around a product
• Society is demanding more immaterial values, both in the B2C and B2B domain

Managerial explanations:

• Companies have discovered that the main sources of value are on the services part, less on the production part

For manufacturing companies, it's a question of no or no go with services around the product

There's three kinds of benefits:

• Financial benefits:  increases sales, and the margin in services is higher than in the product
• Strategic benefits: self-service, or expansion to new markets
• Marketing benefits: improve customer satisfaction, customer loyalty, service as a buying criterion

However, there are costs inherent in services to a manufacturing service, in two costs:

• Cultural costs: manufacturing culture in an industrial approach has to adapt to a service culture
  • IBM succeeded in this transition, but not all industrial companies have succeeded
• Organizational costs: when developing the service package, have to develop a new position
  • e.g. a car manufacturer entering the credit market

Matrix: diversity of services manoeuvers in the manufacturing field

• Large range from putting the toll-free number on the back of a package of pasta, to the cultural shift required at IBM
• X-axis: opportunities for manufacturing companies to create services:  organizational intensity
  • What will be the impact of services on the company?  Large, like IBM?
  • (a) Tactic: small impact
  • (b) Strategic:  have to get new competencies to implement a service strategy
    • e.g. selling a training program to make the product work
    • e.g. Medical branch of GE, decided to sell a new training program, had to develop new training competencies
  • (c) Cultural: manufacturing company develops services, to change the culture into a service culture
    • This was the change of IBM
    • e.g. Lexus brand of Toyota:  we don't sell cars, we sell a luxury service package
• Y-axis: service specificity, i.e. how intense is the service offering?
  • (a) Customer service: Just a toll free number, or developing a relationship with the customer
  • (b) Product services: a new offering around the product offering, e.g. extended guarantee
  • (c) Service as a product: developing services not connect to a product
    • e.g. IBM Global Services, without buying IBM computers
    • Autonomous company, apart from manufacturing

Matrix versus benefits and costs

• Most benefits to upper right, as are the costs

Two worldwide examples: IBM, and GE

• GE, more than 90% of products come from services.
• Need to change the culture of IBM

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