It is a challenging task to manage a service or product industry. These challenges however are different and unique for each industry. Some of the challenges that are faced while managing, growing and making profit from a service industry are discussed below, these factors do not readily apply to the product industry.
- Services are intangible and so customers cannot see or hold them before they buy it. Buyers are therefore uncertain about the quality of service and feel they are taking a risk. The buyer is unable to conceptualize and evaluate a service from beforehand. From the seller’s perspective he finds it challenging to promote, control quality and set the price of the service he is provide. Unlike products the intangible nature of service causes difficulties to both client and the firm.
- Defining and improving quality in the service industry is a major challenge. Unlike products very often services are produced and consumed simultaneously. As a result service quality management faces challenges that the product industry never ever comes across. In the product industry the manufacturer gets ample opportunity to test his products before they reach the market. In case of a quality issue the problem is taken care of during the quality check and customer satisfaction is taken care of. However during service production the customer is right in front. To guarantee customer satisfaction in this scenario is a major challenge.
- In case of the service industry the customer first needs to develop trust in the service organization before he buys their services. The client often gives more importance to the amount of faith he has on the service organization than the services being offered and their value proposition.
- Service industry faces competition not only from fellow service industry but also from their clients who often question themselves whether or not they should engage a service at all!
- Most of the product companies have dedicated sales staff while in the service industry the service deliverers often do the selling. Coordinating marketing, operations and human resource efforts is a tedious task.
- Passion works for the service industry. More the passion, spirit and desire among the service staff more is the revenue generation and success generated every day. There is a direct correlation between staff passion and financial success and similarly lack of passion leads to failure in the service industry. Staffs need to be constantly motivated and efforts have to make to sustain employee commitment.
- While testing new services is a constant challenge communicating about these services simultaneously is also not easy.
- Setting prices does not come easily for service industry.
- Standardization versus personalization is another major issue the service industry has to face.
In order to assess that, you need to understand the key points yourself.
Understanding how a service is different
A product is a physical thing, something you can touch. Usually something you buy and take away. Services are different. But how? And why does it matter?
The easiest way to explain is to use an example. Let’s look at wedding photography.
You will get images of some sort as an end result, but they’re not necessarily a physical product. You can turn them into a physical product. A wedding album. A calendar. A fridge magnet. You may even get one or more of those physical products as part of your overall service package. But what you are really buying is the time and expertise of your photographer. The ability to create great images and memories of your special day.
The photos of your wedding will not be the same as the photos of anyone else’s wedding.
- The circumstances are different. The location. The weather. The guests. The time of day.
- The photographer is (often) different. Even if two wedding parties use the same photographic studio, the individual photographer on the day may not be the same. Stylish Sally and Winsome Will have different shooting styles.
- Even the same photographer may deliver differently on different days. Maybe Stylish Sally has a stinking cold and doesn’t want to be out in the rain. She’ll do her best to deliver a great job, but she may not have the easy touch she does on a sunny day when she’s feeling fine.
Intangibility and Variability make it hard for customers (and service providers, too) to set expectations and define quality.
- How do you know, in advance, that you’re going to get great photos of your wedding? You don’t. You can’t test them. How do you know which service provider to trust?
- How do you compare one offering to another?
- What if you don’t like the end result? Are you entitled to a full refund? Sally has already spent all that time and effort on your wedding. You can’t give it back or get it exchanged, the way you would a camera or a washing machine which didn’t work.
- How do you assess the quality anyway? What’s the objective standard for a ‘good’ or a ‘great’ wedding photo?
You went with Stylish Sally over Winsome Will. If Stylish Sally is sick on the day and sends Winsome Will instead, you won’t be happy. The photography service is inextricably linked to the person providing it.
It’s also linked to the wedding. The photographer has to be at the wedding – there’s no other way to get the photos. And the customer – the bride, the groom, their families and friends – are equally linked. The customer is, in a very real way, part of the service.
There’s no way to ‘stock up’ on a service. No way to store inventory. Your wedding is a one-off event, and everything you want, including your photographer, has to be available on that day.
Inseparability and Perishability present other challenges for services which don’t apply to products.
If your service is dependent on the customer, how do you ensure consistent quality? The customer dependency is clear in photography, but it’s equally applicable in other service businesses. If you’re supporting an IT network and your client has a 7 year old server and won’t invest in a new one, how do you ensure reliability? What if you’re completing a tax return and they won’t provide receipts and details of expenses? At NoBull we provide marketing services. We need to know who your target client is. ‘Everyone’ is not a clear answer or a good target – but we’ve had clients say that! (At least at the beginning, we work to pin them down.)
Most weddings are on Saturdays. A specialist wedding photographer may be turning work away because he’s booked every weekend for the next 12 months, but still have nothing to do from Monday to Friday. What about a landscape gardener or a builder?
Growth and scalability
You only have so many hours. You can’t just get more of your service produced. You can take on staff, but then you have to handle the ‘variability’ issue all over again. How do you ensure your new staff are delivering to the same standard? And how do you recoup the overhead you spend training them?
You can use incentives like variable pricing to spread the demand a bit, but that raises a whole set of other issues.
A cake costs the same on Monday as it does on Saturday. Does a photographer? Probably not. But how much should the price difference be?
What about your new junior photographer, who’s handling your overflow work? You vouch for his work, but he’s not you. Your customers aren’t quite so confident. Would a lower price get him more work? Or would it cut into your margin too much? Would it make people think you were overcharging for your own time and expertise?
…and how do you handle the client with champagne tastes and a beer budget?
For most products, you pay and you take the product away. Or you pay online and it’s delivered soon after. (If it’s a high price item like a car, you may get financing to spread the cost. But that’s an add-on service, which you pay extra for. It’s not the product itself.) But what happens with a service? No one wants to be paying the photographer at the wedding itself.
- Some services are completely prepaid, like concert tickets.
- Others are generally paid for afterwards. You get a bill after you’ve eaten your meal, not before.
- Many have more complex terms, including a deposit and a final payment. When you stay in a hotel, you generally give a credit card in advance, then settle up on departure.
With a service, once it’s delivered, you can’t get it back. There’s risk for the customer if they don’t get what they want and they’ve paid already. There’s risk for the provider if nothing is paid upfront. Payment terms are a way of balancing those risks.