Service-oriented business models: Service as a non-product offering

This post is part of a series that explores service-oriented business models based on different perspectives on service.

Early service definitions are influenced by a strong need to differentiate services from products as market offering. This resulted in defining services based upon the ‘IHIP’ characteristics for services: Intangibility, Heterogeneity (or non-standardisation), Inseparability (of production and consumption), and Perishability (or exclusion from inventory) (Zeithaml, Parasuraman, & Berry, 1985). However, nowadays this approach is heavily criticized because it provides a contra-view of service (e.g. as non-goods), overly emphasizing the view of the provider (Vargo & Lusch, 2004), and it does not capture the essence of services; in particular their process and interactive nature (Edvardsson, Gustafsson, & Roos, 2005). Moreover, goods and services should not be seen as two extremes, it is more a continuum comprising a range of hybrid offerings (Shostack, 1977).

Service as a specific kind of (non-product) market offering is important because it directly relates to the Value Proposition, the core of the business model. It will affect the other elements, such as the Revenue Streams, for example, it may come with a subscription fee. The IHIP characteristics can also be assessed in terms of their impact on the business model and its elements. In addition to the Value Proposition there will be other specific relations with elements, for example, intangibility will affect the Relationship and Channels and the inseparability will affect the Costs (e.g. it is harder to synchronize supply and demand). This has similarities with many traditional publications about strategy and management in service organizations addressing the impact of the IHIP characteristics on managerial and organizational elements (e.g., Bowen & Ford, 2002).

Service as a non-product offering would mean that there are two archetypical business models: product models and service (non-product) models. These should be seen as extremes on a continuum where different combinations of product and service are possible, maybe giving rise to other, hybrid business models based upon specific kinds of combinations, e.g. a ‘core product with added value services’ model. This also opens up opportunities for business innovation with respect to transforming products into services (‘servitization’) and the industrialization of services (‘productization’). A business model perspective is important here as these kind of radical business innovations affect the whole business model, not just the market offering, as for example the ‘Power by the Hour’ model Roll Royce uses for its aircraft engines and the ‘Care for Life’ model KONE uses for its elevators. In the IT industry we see servitization in the rise of ‘as-a-Service’ business models addressing the delivery of IT services over the Internet, such as ‘Software-as-aService’ (SaaS). The idea of SaaS is that that instead of buying the software as a product and deploying it yourself, the user can use the software on demand via the Internet, for example CRM software form Salesforce. With service as market offering, there is also the option of bundling services, i.e. offering and selling services as a package. A common example of a service bundle model can be seen in the telecommunication where a triple play offer includes telephone, TV and Internet.

References

Bowen, J., & Ford, R. C. (2002). Managing service organizations - Does having a “thing” make a difference? Journal of Management, 28(3), 447–469.
Edvardsson, B., Gustafsson, A., & Roos, I. (2005). Service portraits in service research: a critical review. International Journal of Service Industry Management, 16(1), 107-121.
Shostack, G. L. (1977). Breaking free from product marketing. Journal of Marketing, 41(2), 73-80.
Vargo, S. L., & Lusch, R. F. (2004). The Four Service Marketing Myths: Remnants of a Goods-Based, Manufacturing Model. Journal of Service Research, 6(4), 324-335.
Zeithaml, V. A., Parasuraman, A., & Berry, L. L. (1985). Problems and Strategies in Services Marketing. Journal of Marketing, 49(2), 33-46.