SRVCUL

Introduction
Introduction
• Logic of service as a business perspective
• Relationship between service and customer interactions
• Concept of service competition
• Service as a strategy in comparison with other strategic approaches
• Strategic and tactical implications of a service strategy
• Relationship approach to customers.
• Concept of service logic and its implications for the value generation
process and value co creation.
• Customer relationship approach

A case of service and
customer relationships
In a village in ancient China there was a young rice merchant,
Ming Hua. He was one of six rice merchants in that village. He
was sitting in his store waiting for customers, but business was
not good.
One day Ming Hua realised that he had to think more about the
villagers, what they were doing, their needs and desires, and
not just distribute rice to those who came into his store. He
understood that he had to provide the villagers with something
that was more valuable for them, and something different, from
what other merchants offered. He decided to develop a record
of his customer’s eating habits and ordering periods and to
start delivering rice to them.
To begin with, Ming Hua walked around the village and knocked on the doors
of his customer’s houses asking:
• how many members there were in the household;
• how many bowls of rice they cooked on any given day; and
• the size of the rice jar in the household.
Then he offered every customer:
• free home delivery; and
• a service to replenish the household’s rice jar

For example, in one household with four persons, every person would
consume on average two bowls of rice a day, and therefore the household
would need eight bowls of rice every day for their meals. From his records
Ming Hua could see that the rice jar of that particular household contained
rice for 60 bowls, or approximately one bag of rice, and that a full jar would
last for 15 days. Consequently, he offered to deliver a bag of rice every 15
days to this house.
By establishing these records and developing this new service, Ming Hua
managed to create more extensive and deeper relationships with the
villagers; first with his old customers, then gradually with other villagers.
Eventually the size of his business increased and he had to employ more
people: one person to keep records of customers, one to take care of book-
keeping, one to sell over the counter in the store, and two to take care of
deliveries. Ming Hua spent his time visiting villagers and handling contacts
with his suppliers, a limited number of rice farmers whom he knew well.
Meanwhile his business prospered.
The Nature of Service and
Customer Relationships
Key aspects of service are:
• Service is support for customers’ individual processes.
• The ultimate goal of service-based business is to facilitate

value creation for the customer
• Service is a process, where the service provider’s

resources and the customer often interact
• To become a service provider, the resources of the firm’s

offering can be of any kind.
Key Relationship-based characteristics:
• long-term business contact
• Insight into the customer’s everyday processes.
• Mutual Value Creation

Three Important Strategic Requirements of a
Relationship Strategy
1. Redefine the business as a service business and the key

competitive element as service competition.
2. Look at the organization from a process management

perspective
3. Establish partnerships and network

Three Tactical Elements of a relationship
strategy
1. Seek direct contacts with customers
2. Build a database covering necessary information
3. Customer-centric service
Commercial Analysis
Commercial outcome of a business can
be described with three elements
• Revenues
• Costs
• Capital
Commercial Analysis
1. Capital – wealth in the form of money or assets
invested in a business to generate income
2. Costs – total money time and resources associated
with a purchase or activity
3. Revenue – total amount of money received by the
company for goods sold or services provided during
a certain time period
Commercial Analysis
• Revenue generation capability is dependent on how well

the firm understands its customers and their processes
and how well it manages its resources such as skills,
knowledge, technology, products, and service activities.
Commercial Analysis
1. Profit Variable
2. Process Variable
Commercial Analysis
The Three Strategic
Requirements
1. Redefining the firm as a service business
2. Taking a process management perspective
3. Developing partnerships and networks

Defining the Firm as a
Service Business
• Service approach applies to any type of firm
• Customers do not only look for goods and services, they

demand a much more holistic service offering
• Product, Service Activities, = one element
• Core product/service = Insufficient

A Customer Focus: The firm
as a service business
A Process Management
Perspective
Functionalistic Organization
• allows for sub-optimisation
• Every activity and corresponding department within a

company is more oriented towards specialisation within
departments than collaboration between them.
Partnerships and Networks
• Service and relationship approach is based on

cooperation.
• Partnerships and networks of firms are formed horizontally

and vertically in the distribution channel and in the supply
chain.
Tactical Elements of
Relationship Marketing
• Direct contacts with customers
• Customer Database
• Customer-Oriented Service System

Direct contacts with
customers
• based on a notion of trusting cooperation between the

business partners
• firms have to get to know their customers much better

than has normally been the case.
• face to face contacts with customers

Developing a Customer
Database
Traditional Marketing
- operates with limited and incomplete information about

customers
• If database does not exist, customer contacts will only be

handled partially in a relationship-oriented manner
Creating a Customer-
Oriented Service System
1. Customers
2. Technology
3. Employees
4. Time
Customer Value and Value
Creation
1. Value-in-exchange
2. Value-in-use
Value-in-exchange
• Value is gradually worked on in the supplier’s processes
• Value is considered embedded in the supplier’s output

Value-in-use
• Value for customers is created by the customer in the

customer’s processes
Value-in-exchange
- materializes when a sale is concluded and money is paid

for the resource
Value-in-use
- evolves over time during usage

The Service Perspective
The Service Perspective Compared
With Other Strategic Perspectives
• Service Perspective
• Core Product Perspective
• Price Perspective
• Image Perspective
Core Product Perspective
• is a traditional scientific management-based approach,

where the quality of the core solution is considered to be
the main source of competitive advantage.
Price Perspective
• the firm considers a continuously low price to be the

major means of competition.
Image Perspective
• Imaginary values
• attractive and functioning core product as a starting point
• heavy investment in marketing communications.

Service Perspective
• aims to support its customer’s everyday processes in a
way that facilitates value creation.
• core solution must be good enough to provide

competitive advantage.
• the core solution is the prerequisite for success, but

where the management of a number of other required
resources, together with the core solution, forms a total
service offering, aiming at supporting customer
processes.
Service Logic vs Goods
Logic
SERVICE LOGIC GOODS LOGIC
Service is a holistic process aiming

Goods are resources delivered to
at supporting customer’s
customers for their use
processes
Value evolves over time during the

Value is embedded in resources
customer’s use of resources
Value-in-use Value-in-exchange
Relational and
Transactional Customers
1. Transactional Mode
2. Active Relational Mode
3. Passive Relational Mode

Relational and
TRANSACTIONAL MODE
- are looking for solutions to their needs at an acceptable price and do not
appreciate contact
Relational and
ACTIVE RELATIONAL MODE
- are looking for opportunities to interact with the service provider in order to
get additional value.
Relational and
PASSIVE RELATIONAL MODE
- are looking for the knowledge that they could contact the
service provider if they wanted to, but seldom respond to
invitations to interact.
Service Management and Marketing 4e /
© John Wiley & Sons Ltd 2016 44
Christian Grönroos / 9781118921449

Service as an activity
• A service is a process consisting of a series of

more or less intangible activities that normally
but not necessarily always, take place in
interactions between the customer and service
employees and or/physical resources or goods
and /or systems of the service provider, which
are provided as solutions to customer problems.

3 Basic characteristics of Service
• 1. Service is a process consisting of a series of
activities.
• 2. Service is at least to some extent produced
and consumed simultaneously
• 3. The customer participates as a co-producer in
the service production process at least to some
extent

Classification schemes for service
• High-touch – service is mostly dependent on
people and Hi- tech - service is predominantly
based on the use of automated system,
information technology
• continuously rendered services – involves
continuous flow of interactions

The Consumption of service
• 1. Process Consumption – consumption of
service.
• Managing the firm’s customer relationship
becomes an integral part of simultaneous
service production and service consumption
process.
• 2. Outcome consumption – customers consume
the outcome of the production process.

Sources of Competitive advantages in SERVICE
• 1. Flexibility – when designing service processes.

• Flexibility means that a service process is
designed such that it allows for deviations from
a normal or standard, procedure.

• 2. Adaptability – when situations which differ from
the normal procedure occur
• Adaptability means that employees and systems can
observe the need for out of the normal behavior in
customer contacts. (ex Customer is uncomfortable
with the menu, the waiter could ask the guest if he
has some wishes

Customer Management
• 1. Physical Goods context
• (Product Marketing Triangle)
• 2. Service Context
• (service Marketing Triangle)

THE SERVICE PROFIT LOGIC AND
SERVICE MANAGEMENT PRINCIPLES
Competitive edge of a manufacturing firm
(based on conventional managerial thinking)
! 1. Decrease production and administration

costs, to decrease the unit cost of products
! 2. If needed, increase the budget for
traditional marketing efforts such as
advertising, sales and sales promotion in
order to make the market buy the goods
produced
! 3. Strengthen product development efforts
© John
Service Management and Marketing 4e / Christian Grönroos / 9781118921449 Wiley & Sons 57
Ltd 2016
Manufacturing Profit Logic
! INTERNAL EFFICIENCY - Efficient use of production (and

administrative) resources; what traditionally but not totally
accurately is called ‘productivity’.
! EXTERNAL EFFECTIVENESS - the external effectiveness of the

firm’s operation as perceived by its customers (in the form of
customer perceived quality and customers’ willingness to a
given price for an offering)
The Service Profit Logic
© John
Ltd 2016
© John
Ltd 2016
The Strategic Management Trap
© John
Ltd 2016
Customer benefits of a service
strategy
! 1. Fewer Resources/personnel are needed to maintain
contact with service provider
! 2. The person involved in contacts with the provider
will need less of their time for handling these contacts.
! 3. It is psychologically less demanding to maintain
contact with the provider, which in turn increases the
mental capacity of personnel to be used for other
tasks.

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Introduction

• Relationship between service and customer interactions

• Concept of service competition

• Service as a strategy in comparison with other strategic approaches

• Strategic and tactical implications of a service strategy

• Relationship approach to customers.

• Customer relationship approach

• how many members there were in the household;

• the size of the rice jar in the household.

Then he oﬀered every customer:

• free home delivery; and

• a service to replenish the household’s rice jar

• Service is support for customers’ individual processes.

• The ultimate goal of service-based business is to facilitate

• Service is a process, where the service provider’s

• To become a service provider, the resources of the firm’s

Key Relationship-based characteristics:

• long-term business contact

• Insight into the customer’s everyday processes.

• Mutual Value Creation

1. Redefine the business as a service business and the key

2. Look at the organization from a process management

3. Establish partnerships and network

1. Seek direct contacts with customers

2. Build a database covering necessary information

• Revenue generation capability is dependent on how well

1. Redefining the firm as a service business

2. Taking a process management perspective

3. Developing partnerships and networks

• Service approach applies to any type of firm

• Customers do not only look for goods and services, they

• Product, Service Activities, = one element

• Core product/service = Insuﬃcient

• allows for sub-optimisation

• Every activity and corresponding department within a

• Service and relationship approach is based on

• Partnerships and networks of firms are formed horizontally

• Direct contacts with customers

• Customer-Oriented Service System

• based on a notion of trusting cooperation between the

• firms have to get to know their customers much better

• face to face contacts with customers

- operates with limited and incomplete information about

• If database does not exist, customer contacts will only be

• Value is gradually worked on in the supplier’s processes

• Value is considered embedded in the supplier’s output

• Value for customers is created by the customer in the

- materializes when a sale is concluded and money is paid

- evolves over time during usage

• Core Product Perspective

• is a traditional scientific management-based approach,

• the firm considers a continuously low price to be the

• attractive and functioning core product as a starting point

• heavy investment in marketing communications.

• core solution must be good enough to provide

• the core solution is the prerequisite for success, but

Service is a holistic process aiming

Value evolves over time during the

2. Active Relational Mode

3. Passive Relational Mode

ACTIVE RELATIONAL MODE

PASSIVE RELATIONAL MODE

• A service is a process consisting of a series of

Service Management and Marketing 4e /