12 New Service Development
Dr. Jasveen Kaur
One of the serious challenges service firms face in recent times is new service process development. According to PhilipKotler, every company must develop new products. New product development shapes the future of the company. The development of new service can lead to better understanding of market’s particular requirements, making it easier to spot further opportunities. Customer want new products and competitors do their best to surpass the company. The increased level of competition, the rapid pace of change in technology and innovation, growing consumer awareness and heightened consumer expectation, established, beyond, doubt, the need for introducing new services must faster than the competitors in the market. The faster offer provides greater millage for firms to face competition and win consumers.
A constructive organization mechanism is necessary to facilitate new service development in service companies on continue basis. Research studies suggest that are designed and introduced by following a structured planning framework have greater likelihood of success than those that are not developed in a structured framework. The technical infrastructure for the development and production, that is to say, the hardware, software and delivery system of one new product, can provide platform for new services. It is important to develop human resource infrastructure for various stages of a new service development process to improve design, production and marketing operations and also to face challenges of new service development in the future.
What is a New Service Product?
A service can be termed as a new service when it is innovative, created and offered by the company to the world for the first time. Some new services are adaptive replacements. They are the improved versions of the existing service product either in technology, style, status or performance. (K. Rama MohanaRao)
Categories of new service
There are many different ways for service provider to innovate which are explained as follow:-
i) Style: It represents the simplest type of innovation, involving no changes in either processes or performance. However they often are highly visible, create excitement, and may serve to motivate employees (Christopher Lovelock). For example, changing the color scheme of a restaurant, revising the logo for an organization, redesigning a website, or painting aircraft a different color. (Valarie A. Zeithaml)
ii) Service improvements: It is the most common type of innovation. It involves modest changes in the performance of current products, including improvements to either the core product or to existing supplementary services.
iii) Supplementary service innovations: It take the form of adding new facilitating or enhancing service elements to an existing core service or of significantly improving an existing supplementary service. Multiple improvements may have the effect of creating what customers perceive as an entirely new experience, even though it is built around the same core. For example, cafes are design to keep customers entertained with aquariums, waterfalls, monkeys and complete with lightening. (Christopher Lovelock).
iv) Service-lineextension: It represent augmentations of the existing service line, such as restaurant adding new menu item, airline offering new routes, a law firm offering additional legal services and an university adding new courses or degrees.(Valarie A. Zeithaml)
v) Major process innovations: It consist of using new processes to deliver existing core products in new ways with additional benefits.
vi) Major service innovations: These are new core products for markets that have not been previously defined (Christopher Lovelock). For example, retailers adding a coffee bar or children’s play area, and airlines offering phone and internet services during flights.
vii) Start up businesses: This consists of new services for a market already served by existing products that meet the same generic needs. For example, on line banking for financial transactions.(Valarie A. Zeithaml)
Service development is different: Why?
The new service development faces following unique service disconnects:-
1) Services are intangible experience– Services are more experiential in nature rather than product. As a result is experiential, new service development needs a different approach or at least modified approach.
2) Individualized experience- Services mean doing something for someone and not mass producing a product for ‘everyone’.
3) Strategic benefits- People normally think services to be the enhancement to the perceived‘real’ product or offering.
4) Simultaneous product and delivery- Service developers must design and plan for all people and interactions. The service experience is built at each step in the service delivery chain which includes customer to frontline employees’ exchanges, customer to back line employees responses and customer to customer interactions.
5) Services are perishable- Services cannot be returned or resold.
Reasons for New Service Development
For service firm to survive in the competitive environment, continues innovations and new service development are considered necessary. The reasons for introducing new offerings are:-
Ø Build recognition as an innovator in the market
Ø Provide a new service offering to develop a market
Ø Proactive territorial expansion through new or modified offerings at the existing service place
Ø Defensive actions to challenge competitors
Ø Initiate the success of another organization
Ø Take advantage of the technological breakthrough
Ø To reposition i.e. fit consumer requirements more accurately
The development of new service offerings is stimulated by both proactive and reactive strategies, although much of the growth in the market place relates to imitation and repositioning of the service offerings. Those organizations which do have proactive strategies tend to have real commitment and resource base to plan a succession of new service offerings (M.K. Rampal).
Sources of New Service Ideas
New service ideas are available from internal as well as external sources which are explained in the following table:-
External Sources
| Customers | Trade customers, Intermediaries, Consumer feedback, Complaints and Suggestions. |
| Competitors | Imitation, Improvements/Enhancements, |
| Specialist | Consultants, Market research agencies |
| Others | Suppliers, Joint ventures |
Internal Sources
| Research Development | Ongoing Research, Basic Research |
| Engineering, Manufacturing,Purchasing | Development and Operations |
| Marketing Market research,Sales personal, Customer service | Market studies, Analysis of previous research, Product testing |
| Management | Ideas of senior management |
| Others | Employee suggestions, Brain storming |
New Service Development Stages
Services leading marketers have cited commonly acknowledged eight stage process of new service development which is explained as follows:-
1. Idea Generation: The main point of idea generation is to find, in a structured, goal oriented manner, new ways to service the customer in a meaningful way. An innovative organization conducts a formal search of the market for new service ideas. The ideas may come from management, employees, unsatisfied need of customers, competitors, government regulations. For example, globalization brought many service industries through franchising, joint-ventures etc. (M.K. Rampal). In themselves, ideas are neither good nor bad; it is their application and execution that make them so. The frontline people, in direct contact with customers and involved in service production, are critical factor to development of new ideas. In order to motivate Employees Company should reward new service ideas. While collecting ideas, the concerned manager should have an open mind and not be evaluative at this point. They should look for maximum number of ideas from various sources; pooling of ideas should be the only objective. Service attribute analysis is one technique that helps the service organization to improve the existing process. Under this approach, each of the attributes-facilitating service attributes and supporting service attributes- is scrutinized for any possible improvements. The pool of new ideas thus generated needs to be evaluated using specific criteria through the process known as screening. (K. Rama MohanaRao)
2. Screening: Many of the ideas might look interesting but they must be screened against service objectives, service policy and organization’s resources. Only a small percentage of idea will survive an initial screening exercise to assess whether they are sufficiently commercial to progress. The type of questions asked at this stage relates potential markets, how the idea fits into existing service offerings and likely level of resources to develop the idea. (M.K. Rampal) The objective of screening new ideas is to allocate new resources between the various projects. In the screening process, two types of errors are likely to occur: go errors and drop errors. Go errors occur when bad idea is forwarded for further processing. This error result in monetary and opportunity costs to the organization as all the efforts to process and implement this idea yields no result. Drop errors occur when good idea is dropped due to an improper evaluation criterion and mechanism, causing the company to loose it forever. The ideas shortlisted through screening need to be conceptualized. Ideas are general and vague in nature, whereas concepts are specific and concrete.
3. Concept Development and Testing: Concept Development means the translation of an idea into description form in accurate terms. Concept Development is especially difficult for service firm because of the specific characteristics of service. A clearly defined service concept includes the elements of basic service package, customer employee interaction and the service design document. A popularly used technique for development of service concept is ‘service blueprinting’. It provides a clear picture of service process to different people involved in service production and consumption. The service concept developed is tested by presenting the concept to target consumers and seeking feedback. Besides customers, the concept has to be tested with employees of the organization so as to assess their understanding, ability, and willingness in performing the service. The results of concept testing help the management find out the need- gap level, purchase intention level, the broad and strong consumer appeals, the shortcomings in the concept, the preferential order of various processes and so on. It provides an opportunity to develop a service package that matches closely with target consumer expectations. After successful testing of the concept, a preliminary marketing strategy has to be developed. The service plan should clearly identify the target consumer, the market size and the competitors. The plan should outline the positioning, pricing and distribution strategies. The strategic plan should also set targets for long term sales, the expected market share and profit- both long and short term. (K. Rama MohanaRao)
4. Business Analysis: The ideas which appear attractive to the market are then subject to more detailed analysis. This allows the company to assess the market size, potential sales, and revenue against development and launch costs. The use of sensitivity costing will be applied at this stage, where a series of adjustments are made to factors such as price, packaging and customer take- up, and revenue implications evaluated. On this basis minimum and maximum revenue potential will be projected. (M.K. Rampal) Market competitiveness and the ability of the company to respond to variations in the demand for new service are also analyzed. Business analysis helps managers to rank the screen ideas. (K.RamaMohanaRao)
5. Service Development: During this stage, the organization determines whether it is possible to provide the service at cost and quantity that will make the service price attractive to the customer. The elements of the service that will be particularly important to the consumers must be identified at this stage and clearly highlighted during service design. This is also the stage at which promotion, distribution and pricing strategies are developed. The development stage involves production of prototype or sample of new offering. For example, in banking sector, the development phase of new savings product would require the modification of savings computer system by programming staff, the design of forms and documents to be used in setting up the accounts, branch staff to follow in completing the forms and processing them. (M.K. Rampal) This step is an action- oriented one, involving expenditure. It is a clear shift from deskwork to the execution of the concept. The success of the step represents the efficiency of the management in transforming a theoretical design into practical reality.
6. Test Marketing: Now the services are ready for sale. To know how the service offer could really provide satisfactory experiences, it is necessary to test it among different groups of customers. Based on early responses, appropriate changes can be made to make the offer more qualitative. Service firm generally invite employees’ families and select the customer to know their responses. (K.RamaMohanaRao) Usually the organization tries out the new offering in the market. If the offering is tested in more than one geographic market, the different promotional approaches in each market are used to test their relative impact. The test marketing is time consuming and expensive. As there is danger of quick imitation by the competitors the test marketing period should be kept minimum. (M.K. Rampal)
7. Commercialization: The new service developed is now offered for the sale. At this stage the service firms have to incur huge costs, particularly in external marketing. The major task is to create awareness in the market and persuade the target market to use the service. Consumer education, guidance and training, if necessary, are to be organized to make the consumer participate well in the service process and also to make them perceive the quality of service. At this stage, the following four decisions are of utmost importance:
i) When should the service be offered?
ii) Where should the services be offered?
iii) To whom should the services be offered?
iv) How should the services be offered? (K. Rama MohanaRao)
Introducing a new service offering requires heavy involvement by marketing department. Employee incentives and customer premium must be planned and offered for making the service offering launch a success.
8. Evaluation: This is the final stage in developing a new service offering and involves the use of primary and secondary research to monitor the progress of new service offering in relation to organization’s goals. No service development plan is complete if it fails to induce a system for monitoring the results of the plan. Effective monitoring enables the service provider to take remedial action where needed, as well as acquire additional knowledge for successful management of service life cycle.
It will be observed that first two stages are closely related to overall new service strategy. This strategy enables generation of new idea and basis for their evaluation. Whereas next three stages deal with ideas and as such are the least expensive. Many new service offerings fail because the idea or timing is wrong. These three stages are helpful in identification of such situation. The subsequent stages are costly because they require more rupees and more human resources to implement them. Some companies adopt short- cuts and they usually skip- test marketing. With the avoidance of this stage companies lack consumer reactions to propose service offering. The service development process is not as advanced as the products because of historical reason. The service by virtue of having a shorter life cycle compared to products needs a dynamic and flexible approach to suit the distinctive circumstances. (M.K. Rampal)
Achieving Success in New Service Development
Researchers that in developing new services, the core [product is of only secondary importance. The quality of the total service offerings and the market support that goes with are vital. Underlying success in these areas, they emphasize, is market knowledge. Without an understanding of market place, knowledge about customers, and knowledge about competitors, it is very unlikely that a new product will be a success. Service firms are not immune to the high failure rates plaguing new manufactured products. The reasons for failure ranged widely, including failure to meet demonstrate a consumer need in ability to cover costs from revenue and poor execution. A research was conducted and researchers found that the three factors contributed most to success were, in order of importance:
1. Market Synergy: The New product fit well with the existing image of the firm, provided a superior advantage to competing products in terms of meeting customers’ known needs, and received strong support during and after the launch from the firm and its branches; further, the firm had a good understanding of its customers’ purchase decision behavior.
2. Organizational Factors: There were strong interfunctional cooperation and coordination; development personnel were fully aware of why they were involved and of the importance of the new products to the company.
3. Market Research Factors: Detailed and scientifically designed market research studies were conducted early in the development process with the clear idea of the type of information to be obtained; a good definition of the service concept was developed before undertaking field surveys were undertaken. (Christopher Lovelock)
The fact that the services are intangible and heterogeneous, it becomes imperative for a new service development system to have four basic attributes which are given below:
i. The service design should be objective and not subjective.
ii. Service Design should be precise and not vague.
iii. Service Design should be fact- driven and not opinion- driven
iv. The steps in service design should be methodological and not philosophical.
Conclusion
A service product comprises all the elements of the service performance that create value for the customer, and it consists of a core product bundled with variety of supplementary service elements and their delivery process. Designing a service product is a complex task that requires an understanding of how the core and supplementary services should be combined, sequenced, delivered, and branded to create a value proposition that meets the need of the target market segments. For service firm to survive in the competitive environment, continues innovations and new service development are considered necessary. A service can be termed as a new service when it is innovative, created and offered by the company to the world for the first time. There are many different ways for service provider to innovate. New service ideas are available from internal as well as external sources. The development of new service offerings is stimulated by both proactive and reactive strategies, although much of the growth in the market place relates to imitation and repositioning of the service offerings. Services leading marketers have cited commonly acknowledged eight stage process of new service development. It is observed that first two stages are closely related to overall new service strategy. This strategy enables generation of new idea and basis for their evaluation. Whereas next three stages deal with ideas and as such are the least expensive. Many new service offerings fail because the idea or timing is wrong. These three stages are helpful in identification of such situation. The subsequent stages are costly because they require more rupees and more human resources to implement them. Some companies adopt short- cuts and they usually skip- test marketing. The service development process is not as advanced as the products because of historical reason. The service by virtue of having a shorter life cycle compared to products needs a dynamic and flexible approach to suit the distinctive circumstances. In developing new services, the core product is of only secondary importance. The quality of the total service offerings and the market support that goes with are vital. Without an understanding of market place, knowledge about customers, and knowledge about competitors, it is very unlikely that a new product will be a success.
Learn More
- Rampal, M.K., Gupta, S.L. (2000). Service Marketing. India: Galgotia Publishing Company.
- Lovelock, Christopher, Wirtz, Jochen,Chatterjee, Jayanta(2011). Services Marketing. India: Pearson Publications.
- Rao,K. Rama Mohana (2013). Services Marketing. India: Prentice Hall.
- Zeithmal, A. Valarie&Bitner, Mary Jo &Gremler, Dwayne D.,&Pandit, Ajay(2013). Services Marketing. India: McGraw Hill Education Private Ltd.