* Word count or equivalent: 1000 (500 per answer) * Assessment criteria: * To identify the nature of operations management * To analyse the processes of operations management * To analyse management approaches to operations management * To apply operations management to gaining customers and competing * To examine the operational processes and life cycles

* Knowledge/understanding of concepts (40%) * Ability to collect, synthesise and apply information (20%) * Ability to generate appropriate conclusions (10%) * Logical structure (10%) * Communication of information/literacy (20%)

Introduction * What the question going to be answered is about * This essay aims to answer… and will refer to… and apply examples from the… industry *
Body
* Begin each paragraph with the main idea/ topic sentence * This tells the reader what the paragraph will be about * Make sure your reader understands the main idea by EXPLAINING or giving a definitions
How to.. * Give some EVIDENCE to support your main idea – the evidence should be a direct quotation or paraphrase and supported by a REFERENCE. * CONCLUDE your paragraph by either * linking back to your main idea * linking forward to the main idea in the next paragraph

Conclusion * Conclusions are often hard to construct as you want to do more than just repeat everything you have just answered. * Ensure that you reach an overall conclusion. * This essay sought to answer…

The conclusion may include: * a summary of the arguments presented in the body and how these relate to the essay question * a restatement of the main point of view presented in the introduction in response to the topic * the implications of this view or what might happen as a result. Some aspect of the service
Shorter exposure to service, more personal , Growing use of self service, managing evidence uniform , complementarity lots of service add up to positive experience, coying serveces . Cooper et al (2008).

Servuction

What is servuction?
The servuction model is a system used to illustrate factors that influence service experience, including those that are visible and invisible to consumers.
According to Langeard et al. (1981) the Invisible component consists of invisible organizations and systems. It refers to the rules, regulations and processes upon which the organization is based. Although they are invisible to the customers, they have a very profound effect on the consumers service experience.

Servuction model is not easy to apply to service because the characteristics of service those not always allow. As much as a firm tries to apply this model to its service a bad day can directly affect the service towards the customer’s hospitality. Applying this to the airline and airport industry, unpredictable peaks like weather distraction can affect the service within an airport. It is in this case that airline and airport manager should be prepared towards any kind of unpredictable situation, to be able to handle is as good as possible since it’s the nature of the service.
This model is very useful when it comes to explaining the changes in service occur within recent years. Customers have taking responsibilities for their own service. Therefore service encounter can be high tech or high –touch. In the high tech service has little or no staff imput, customers usually interact with technology, such as when they use check in machine to check in while there are in the airport. This is also seen in the banking system and many other firms. The servuction system is one of the many system that operation managers uses to ensure that efficient and reliable service is delivered.

Visible part consists of 3 parts:( refering to servuction but also explain what a service escape is)
Serviscape (inanimate environment), contact personnel/service providers, and other consumers.
Bitner (1992) define servicescape the use of physical evidence to design service environments. It consists of ambient conditions such as music, inanimate objects that assist the form in completing is tasks, such as furnishing and business equipment.
All non-living features present during service encounter.
Contact personnel: Employees other than primary providers that interact with consumer. Service Provider: Primary provider of core service, such as dentist, physician or instructor.
Other Customers- Customer A : Recipient of bundle of benefits created through service experience and customer B : Other customers who are part of Customers A’s experience.

Servuction model demonstrates consumers are an integral part of service process.
The S level of participation may be active or passive, but always there.
Managers must understand the interactive nature of services and customer involvement in production process.
The four components of the servuction model combine to create the experience for the consumer and it is the experience that creates the bundle of benefits for the consumer.

• A model to illustrate the factors influencing the service experience
• Includes those factors that are visible to the customer and those that are not
• Visible component is of three parts: inanimate environment, contact personnel / service providers and other customers

The following model is also important to demonstrate and explain the changes occur in recent year in the customer processing operations. An example of this is that the extent to which service is provided in the airline industry has changed. This is also thanks to technology, with the introduction of self-service technologies customers are now taking responsibility for their own service becoming in this case co-workers of the service providers. Check-in machines etc.

Contrast
It is also very important to realise that switching of activities to customers has major market implications too. It can change the customer script and hense requires research and detailed planning.

* These are example questions which you will need to work on to help you prepare: * Referring to Neely’s (2008) framework, distinguishing between the identified OQs and OWs how can these can be applied to LCC and FCC services? * Referring to Neely’s (2008) framework, distinguishing between the identified OQs and OWs how can these can be applied to OTA and TA services? * The nature of the travel and tourism industry can have significant implications for operations management, what could operations managers do to manage facilities effectively taking into account levels of formality and complexity?

Nature of service in OM

Operation management
Is a management processes that convert inputs(labour) into output (in the form of goods and services). It is simply how service is delivered.
An operation is a transformation process which changes inputs into outputs which adds value for customers.
Operation management is a term used or the activities which produce and deliver product and services.in many small organisation operation management performed by people who perform task and activities within the organisation. Operation management has evolve through the years, initially is was referred as production management. Unlike in the past years where production management was focus on internal activities of the firm, over the time firms realized that performance did not depend exclusively on what happened within the factory but also how well the product is distributed to customers.
What is the nature of operations within an organization?
As an operation manager, having identified the functions within an organization, it is therefore important for an operation manager control the operations to ensure that they are delivered smoothly and efficiently.
Operations management is understood as the process whereby resources or inputs are converted into more useful products. operations management is more frequently used where various inputs are transformed into tangible services.(Jones P. & Robinson J. (2012). The gaol of operation management is provide a smooth efficient operation.
Viewed from this perspective, operations management will cover such services organization as banks ,airlines ,utilities ,pollution control agencies super bazaars, educational institutions ,libraries ,consultancy firm and police departments, in addition ,of course ,to manufacturing enterprises. The second distinction relates to the evolution of the subject.

* Materials Processing Operations (MPO’s) usually referred to as manufacturing * Customer Processing Operations (CPO’s) usually referred to as a service * Information Processing Operations (IPO’s) usually referred to as services

* Operations is one of the core functions within an organisation. (the others being HR, Finance, Sales & Marketing) * An operations manager is responsible for short term operational activity, and long term development and investment in processes.

* Services differ from materials processing operations in four ways; intangibility, heterogeneity, perishability and simultaneity. This has a bearing on how these operations are managed.

First of all we use the four V's of operations, volume, variety, variation, and visibility. Before we tackle the activity think about how we could measure each of these dimensions for the operations that we will visit,
Volume- It is important here to distinguish between the actual volumes in this case the number of customers served that the impressive burger has to cope with, and the maximum it could cope with. This is called the capacity of the operation. Volume relates to the size and scale of the output, for example how many ticket are sold to customers in a specific time period.

Variety- The variety refers to the size of product range of the range of number of service offered. Relating this to the airline industry an example which could be used is the variety of cabins offered in an aircraft, economy, business and first class. Most of the time first two V’s mentions are related together.
Variation- It describes how level of demand changes over time and thereby affect the volume of output.(Jones P. & Robinson J. (2012).Possibly the easiest way to measure variation is the ratio of peak demand in a day or a week, to the lowest demand during that day or week. An example of this could be the demand airline has in certain hours of the day, and in these cases airfares are higher than during different time of the day.
Variability It refers to the extent to which each product or service may be customized or not. The extent to which a product or service could be customised.

Function of Operation management

Volume-variety and design
In the four V's of operations were described. These were volume, variety, variation and visibility. The first two of these - volume and variety - are particularly important when considering design issues in operations management. Not only do they usually go together (high variety usually means low volume, high volume normally means low variety) but together they also impact on the nature of products and services and processes which produce them.
The volume and variety of an operation's activities are particularly influential in determining the way it thinks about its performance objectives. The figure below illustrates how the definitions of quality, speed, dependability, flexibility and cost are influenced by the volume-variety position of the opera

4 Vs Distinguishing features of service.

In the studies of Sasser et al (1978) it was argued that there were four features of services that makes difference while manufacturing goods and services. And there are all part of the nature of the service in airline and airport industry.

The nature of the service
Intangibility: Lack of tangible characteristics of a service operation. This means that they are services that does not physically exist but that are directly experienced by consumers. This explains that at the time of purchase of the service here is not physical evidence of it. An example is that the airline industry’s product is of course, an intangible one, which is instantly perishable and cannot be stored. (Shaw 2011). In contrast Jones P. & Robinson J. (2012) argued in their recent studies that if products have many intangible feature, it could then be argue that services have tangible features . which example could be how queues are designed and how the technology works.

Heterogeneity It refers to the variety of response consumers may have to a service experience. Link to intangibility, if there is no tangible product the consumer will therefore interpret their experience in different ways. An example of this within the airline and airport industry the reaction of a passenger’s experience may vary from the anther one even if it the same service that was provided to the both of them. This clearly explains how managing customer experience can be very challenging,

Perishability The inability of service providers to inventory their service. It is argued that service cannot be inventoried or put into stock. An example given by Jones P. & Robinson J. (2012) is that, an airline seat not sold is therefore a sale that is lost forever. This explains how important it is for an operation manager to ensure that service is being used to maximum.

Simultaneity o inseparability explains how service are produced and consumed at the same time. In this occasion operation managers need to ensure that service provision has to be matched closely to consumer demand, and demand is not easy to predict.

Servicescape

Serviscape (inanimate environment), contact personnel/service providers, and other consumers.
Bitner (1992) define servicescape the use of physical evidence to design service environments. It consists of ambient conditions such as music, inanimate objects that assist the form in completing is tasks, such as furnishing and business equipment.
Empirical studies confirm that these factors influence service quality perceptions of restaurants (Milliman, 1986) and retail venues (Milliman, 1986; Yalch and
Spangenberg, 1988). Signs and symbols communicate explicit (i.e., posted labels, directions and rules) or implicit (quality of materials and furnishings) meaning about the physical environment.

Our qualitative research yielded clear evidence for all three components of servicescape. The first servicescape sub dimension combines elements of both spatial layout and functionality, readily recognizable from Bitner’s (1992) description of the servicescape. It makes intuitive sense that these two concepts should be very closely related as together they capture how well the airport layout “facilitate(s) performance and the accomplishment of goals.” (Bitner, 1992)

Because airports require passengers’ physical presence and often a significant time commitment, the physical environment of the airport can influence perceptions of the overall quality of the service encounter. For example,
… assume that a traveler enters an airport and (1) is confused because he or she cannot find signage giving directions to the assigned gate and (2) is emotionally distressed because of crowds, poor acoustics and high temperatures.

Here the servicescape directly impacts the traveler’s evaluation of the quality of his or her airport experience. (Bitner, 1992, p61)

* Self-Service – employees are removed from many FoH operations, such as at the airport. * Co-Branding – more than one kind of operation within the same premises. Uses same BoH facility but different FoH staff. Example – Little Chef and Burger King share the same premises in the UK.

Strategic Operation Era
In the recent decades the strategy used in the pass pas changed. There has been an introduction of a new strategic approach to operations. This has presented a new ways of manufacturing and delivering service. Some of these strategies are for example:
Ubiquitization is defined by Jones as a strategy service firm uses to be able to physically spread their products and services everywhere. Ex are banks.
E business
Low Cost competition: the have been an introduction of new businesses, in this firm are competing with cost which are way lower than the ones of other already established airlines. The airline industry has been revolutionized by the so call low cost career, beginning in the us and spreading in uk and asia.

OQs and OWs

6.2 Creating competitive advantages: Order qualifiers and winners
Any strategic corporate decision, whether concerning the location or relocation of a plant or the designing or redesigning of the supply chain, needs to result either in the creation of a new or the strengthening of an existing competitive advantage.
Strategic management and survival require the raising of key issues, such as what is it that brings business to the company? Why do customers buy a company’s products? How has it succeeded in the past? Order ‘winners’ and ‘qualifiers’ focus on those factors that can determine one’s competitive advantage. Order winners. According to the APICS50 dictionary (2004), order winners are the competitive characteristics that cause customers to choose one firm’s goods and services over those of its competitors. Order winners can be considered to be competitive advantages for the firm. Order winners usually focus on the following strategic initiatives:
_ price/cost
_ quality
_ delivery speed
_ delivery reliability
_ product design
_ flexibility
_ after-market service
_ image.

Order qualifiers. APICS defines order qualifiers as the competitive characteristics that a firm must exploit to be a viable competitor in the marketplace. For example, a firm may seek to compete on characteristics other than price, but in order to ‘qualify’ to compete, its costs and the related price must be within a certain range to be considered by its customers. To provide qualifiers, companies need only to be as good as the competition; whereas to provide order winners, companies need to be better than competitors. Qualifiers are not less important than order winners: they are different and complimentary.
Manufacturing must provide the qualifiers to get into or stay in a marketplace, but these alone will not win orders. They merely prevent a company from losing orders to its competitors. Once the qualifiers have been achieved, manufacturing then has to turn its attention to ways in which orders are won and ideally to provide these better than anyone else.
Historically, for operations locating in a FTZ, low cost was the only order winner. Nowadays, both low cost and quality are required to be competitive in the market. The challenge for the future is that all five factors (Figure 6.1) will become standard. The case studies throughout this chapter illustrate clearly how to create a competitive advantage in a globalized world.
50 The Association for Operations Management (http://www.apics.org)
Figure 6.1 Success factors in selling goods (ESCAP secretariat)
Price
Quality
Customer Service
Delivery Speed
Delivery Reliability
Success factors
Order winners

Operations Strategies of EasyJet vs Virgin AtlanticPresentation Transcript * 1. MBA Executive Programme – 2011/12 MANM273 Operations StrategiesGroup Assignment(Group – B, EasyJet-Virgin Atlantic) Surrey Business School 1 * 2. Introduction Market Overview Brief History of Each Airline Order Qualifiers and Winners Operations Strategy Industry Competition Conclusions 2 * 3. Business Strategy Operations Strategy:Marketing Strategy: Finance Strategy: The plan andDefines marketing Financial plan to integration of theplans to support the support the business operations to achievebusiness strategy strategy competitive advantage 3 * 4. EXCELLENT OPERATIONS GIVES THE ABILITY TOPERFORMANCE IN . . . COMPETE ON . . .Cost Low priceQuality High qualitySpeed Fast deliveryDependability Reliable deliveryFlexibility Frequent new products/services Wide range of products/services Changing the volume of product/service deliveries Changing the timing of product/service deliveries * Neely,A. (2008) Business Performance Measurement: Unifying Theory and Integrating Practice 4 * 5. 5 * 6. Vision: To be the best low fares airline in the world Operational Safety Our No.1 Priority Excellence Low cost and highly efficient Measurement F ‘06 F ‘07 Composite 0.82 0.82 Measurement F ‘06 F ‘07 risk indicator OTP 75% 75% Cost per seat ex fuel £ 28.36 26.55 Customer Low cost with care and convenience Measurement F ‘06 F ‘07 Strongly 19% 23% recommend People Revenue per 41.66 40.42 Make easyJet a great seat £ Driving place to work Financial Performance Measurement F ‘06 F ‘07 Deliver a superior return Satisfaction 68% 74% on investment Turnover 22% 10% Target 15% ROE Absenteeism 5% 4.5% PBT per seat £5+ Introduction 2 6 * 7. 7 * 8. 8 * 9. scheduled and non-scheduled UK Market Size-Year 2010 Operating Revenue (£) 12% Scheduled flights (12240000) 17% Non-scheduled 71% flights (2990000) Freight + Others (2078) Transported Passengers (million) Scheduled services 17% Passengers (101.5)[McKinsey] Non-scheduled 83% services Passengers (20.9) [Keynote-Market Report]-2010] 9 * 10. BUSINESS MODEL Full Fare (service) Low Fare (Service) Carrier CarrierStrategy Global Strategy & High Cost Niche Strategy & Low costNetwork Hub & Spokes, Global Point to point between alliance secondary airportsFleet Different type of planes StandardizationProduct Full Service Self ServiceSales Policy Sales Departments, Direct sales, call Distribution by GDS centers/Internet [P.Keller, 2002-P20] 10 * 11. 11 * 12. 1995: Easy Jet founded by Sir Stelios Haji-Ioannou. Inaugural flights go from Luton to Edinburgh and Glasgow, with two leased aircraft, 16 teenagers as reservation agents and another company’s operating license. Initially booking was by telephone only. 1996: purchased four second-hand aircraft to replace its fleet of leased aircraft. 1997: entered to contract with Boeing to purchase 12 brand new 737s. 1998: buys 40% of Swiss charter operation, TEA Basel AG. 1999: Easy Jet’s staff and passengers, is shown on ITV. 2000: floats on the London Stock Exchange. 2002: purchases low-cost airline Go. 2005: takes delivery of its 100th aircraft. 2003~2007: opened bases in Germany, France, Italy and Spain. 2009: Easy Jet truly becomes a pan European airline. 2010: Easy Jet reaffirms its strategy of Turning Europe Orange. [easyJet Annual Report 2010] 12 * 13. Low HighVolumeVarietyVariationVariability 13 * 14. Cost Fare level and conditionQuality Convenience and Comfort(Basic)Speed ….Dependability Schedule adherence, Delivery Ability to keep promises, SafetyFlexibility Points served and routings Frequency Timings Connections Punctuality 14 * 15. DEPENDABILITY COST Schedule adherence Selling Price 15 * 16. 1. Online sales/check in, paperless system2. Secondary airports3. Limited and customer paid catering4. No pre-assigned seats5. Fast turn around time6. Direct point-to-point flights7. Maximize use of aircrafts8. One aircraft type9. Highly incentivized workforce10. Out Sourcing [European Low Fares Airline Association (ELFAA) position paper (2004)] 16 * 17. Secondary Flight Airports Schedule Economy No Frill One type Aircraft TECHNOLOGY BUSINESS Value for B2CAircraft, Pil MODEL money ot, Crew Tickets NETWORK MARKET ARCHITECTURE OFFERING E FlightCommerce Internet experience Relationship Routes 17 * 18. 3500 Million Pound3000 EasyJet(Rev.)2500 EasyJet(Pro.)2000 Ryanair(Rev.)1500 Ryanair(Pro.)1000 500 0 2004 2005 2006 2007 2008 2009 2010 2011 [Companies Annual report] 18 * 19. Ryanair 17% 5% 33% Ryanair EasyjetEasyJe t Air Berlin 17% AerLingous Others Air Berlin 28% 0 20 40 60 80 No. of Passenger (million)-year 2010 EU market share, Low fare carriers - Year 2010 [Companies Annual report] [Eurostat-Air transport passengers & European parliament study 2007] 19 * 20. Financial Performance-2010 Ryanair EasyJet Operation Performance-2010 Ryanair EasyJet Profit A.T. (m £) 275.8 121.3 Aircraft operation/day(hr) 8.9 574.0 10.8Anciliary Revenue(m £) 27.0 571.4 No. Countries Serving 29.0 1463.7 70.3 Operation cost (m £) No. Personnel (x100) 73.6 1851.1 load factor (%) 82.0 87.0 Total Revenue (m £) 1806.2 232.0 2973.1 No. Aircraft 196.0 150.0 No. Airport Serving 125.0 Others (m £) 11% No. Route Serving 904.0 Maintenance 509.0 (m £) 661.0 Seat length (mile) 701.9 7% 775.5 Passenger/Personnel (x10) 662.0 Airport+route Crew(m £) charges(m £) Others (m £) 13% 41% Maintenance (m £) 6% 4% Fuel cost (m £) Airport+route Crew(m £) 28% charges(m £) 15% 35% Fuel cost (m £) EasyJet-Operation costs 40% €= 0.865 £ (Ave.2010) Ryanair-Operation costs 20 * 21. EasyJet Costs are a focus but not the driver of its overall strategy Attempts to differentiate from its low-cost airline competitors ◦ Dealing with major hub airports ◦ Provide meals and accommodation in case of delays or cancellations ◦ Relaxed hand luggage restrictions ◦ Has Loyalty Scheme ◦ Fleet age between 7-10 yearsRyanair dealing with secondary and regional airports provide NO meals and NO accommodation in case of delays or cancellations Limit of 15 kg per passenger(below the industry standard of 20 kg) excess charge of €7 per kg Charge €2.50 per passenger per flight (purchasing by credit card –credit card purchase is the only payment option) Tickets are non-refundable(taxes and airport charges are not refunded) taxes and charges are paid for passengers actually travelling on the flight. No Loyalty Scheme Fleet age 3.5 years “Two drivers of growth, the focus on price and convenience” 21 * 22. 22 * 23. 1984: Virgin Atlantic operated its first scheduled service1986: Added another Boeing 747 and started a scheduled route fromGatwick to Miami1988: Club Air operated two Boeing 727 jet aircraft on behalf of Virgin1990: Had increasing financial problems2000: Sold 49% of the airlines holding company to Singapore Airlines2002: The first airline to use the Airbus A340-6002003: Carried 3.8 million passengers2005: Operated a humanitarian aid charter flight to the Pakistan2006: Carried 4.6 million passengers(seventh among UK airlines) 23 * 24. Low HighVolumeVarietyVariationVariability 24 * 25. Cost Fare level and conditionQuality Convenience and Comfort (Basic)Speed ….Dependability Schedule adherence, Delivery Ability to keep promises, SafetyFlexibility Points served and routings Frequency Timings Connections Punctuality 25 * 26. Perceived Quality AestheticsQUALITY Performance Features 26 * 27. •Type of aircraft•Interior configuration and design•Individual space•On-board service•Ground/terminal service•Airline lounges•In-flight entertainment•Customer Service•Empowered, not unprofessional people:Sales, Airport staff, Crew 27 * 28. Primary Airports Different class, Full Mixed type Service Aircraft TECHNOLOGY Flight Schedule BUSINESS TransportAircraft, Pilot MODEL and, Crew, Airpo Service rt Staff Aircraft Seat NETWORK MARKETB 2 C/B2B ARCHITECTURE OFFERING Internet/Per Value sonal E- Profession Added Commerce al Flight Agents Experience 28 * 29. [www.the beat travel.com] 29 * 30. Industry Standard 5 Virgin Atlantic4.5 Delta Air 43.5 32.5 21.5 10.5 0 http://www.airport-la.com/airlines/compare-VS-DL 30 * 31. ConclusionDoes Virgin Atlantics Operations Strategy help it achieve competitive advantage? Delta Air Virgin AtlanticRoute New York-London London - New York New York-London London - New YorkFlights DL1/DL3/DL148 DL2/DL4/DL149 VS4/VS10/VS/46 VS/3/VS9/VS45Delay(Minute)Avr./Max 19/87,38/122,49/458 28/148,14/107,16/44 38/197,45/162,30/106 28/144,30/107,29/102Price- Economy 503.4 £ 675.1 £Price- Flexible Economy 1349.9 £ 1374.1 £Price- Business 3190 £ 3804.1 £Operation Revenue 604.703 million € 1226 million $ Atlantic (883.09 €)2010 (5238 million $ total airline)[Flightstate.com-2010 ] [Delta Annual report-2010, Average 1€ = 1.3883 $ -2010 ] Virgin is an internationally recognized brand The Virgin Group: more than 20 separate umbrella companies, operating some 270 companies worldwide Virgin now uses its brand as a capital asset in joint ventures Virgin contributes the brand and Richard Branson’s PR profile, whilst the partner provides the capital input 31 * 32. Books 1.Course Material 2. Jones,P. and Robinson,P. 3rd E.(2009) Operations Management. Pearson Custom Publishing Journal Articles 3.Sull, D.(1999)”easyJet $500 Million Gamble”, European Management Journal,17(1),pp.20-38. 4. Assef, A.G. and Josiassen, A. (2011) “The operation performance of UK airlines: 2002-2007” Journal of Economic studies, 138(1), pp.5-16. Electronic documents about companies 5.Data Monitor (2011) ”Virgin Atlantic Airways, Ltd.”[online] Available at: http//www.datamonitor.com (Accessed 16 May 2011) 6. Report (2010) “Virgin groups corporate responsibility and sustainable development”. [online] Available at: http//www.virgin.com Electronic company annual reports 6. Ryanair (2010) Annual report for the year 2010. Available at: www.ryanair.com. 7. easyJet (2010) Annual report for the year 2010. Available at: www.easyJet.com. 8. Delta air (2010) Annual report for the year 2010. Available at: www.deltaair.com. 9. Air Berlin (2010) Annual report for the year 2010. Available at: www.airberlin.com. Discussion papers 10. G.Morrison, W. and J.Mason, K. (2007) What is a low cost carrier?. The university of British Columbia/Vancouver 11. European Organization for safety of Air Navigation. (Euro control) (2010) Available at: www.eurocontrol.int/statfor Web Pages 12. Virgin Atlantic (Undated). Virgin Atlantic – For Students [online] Available at: www.virgin-atlantic.com 13. Trans Atlantic airline market share (2008) [online] Available at: www.The best travel.com 14. Airlines compare (2010) [online] Available at: www.Airport-la.com 15. Airline performance (2010) [online] Available at: www.Flightstate.com 16. Air transport passengers (2007) Available at: http://epp.eurostat.ec.europa.eu 17. European low fare airline association (elfaa) position paper (2004) Available at: http://www.elfaa.com 18. Virgin spreads (2005) Available at: www.brandchannel.com 19. Virgin Atlantic success (2009) Available at: www.eventmagazine.co.uk 20. Virgin Atlantic annual turn over (2010) Available at: Amadeus Market research reports 21. Key Note (2010) Air travel market: Market report: Key note 22. Key Note (2010) Air travel market size: Market report: Key note 32
3.1 Introduction
Inseparability was introduced in Chapter 1 as a defining characteristic of services.
The fact that the production of services cannot normally be separated from their consumption results in producer–consumer interaction assuming great importance within the service offer. The service process can itself define the benefit received by the customer – for example, the way in which customers are handled by a tour guide forms a very large part of the benefit that customers receive. By contrast, a company producing manufactured goods generally only comes into contact with its customers very briefly at the point where goods are exchanged for payment. In many cases, the manufacturer doesn’t even make direct contact with its customers, acting instead through intermediaries. Furthermore, the processes by which goods are manufactured are usually of little concern to the consumer.
This chapter begins by considering the basic nature of the interaction that occurs between producer and consumer, and some of the implications of this interaction which are reflected in marketing strategy.

3.2 The service encounter
Service encounters occur where it is necessary for consumer and producer to meet in order for the former to receive the benefits which the latter has the resources to provide.
The concept has been defined broadly by Shostack (1985) as ‘a period of time during which a consumer directly interacts with a service’. This definition includes all aspects of the service firm with which a consumer may interact, including its personnel and physical assets. In some cases, the entire service is produced and consumed during the course of this encounter. Such services can be described as ‘high contact’ services and the encounter becomes the dominant means by which consumers assess service quality. At other times, the encounter is just one element of the total production and consumption process. For such ‘low contact’ services, a part of the production process can be performed without the direct involvement of the consumer.
Some measure of the importance of the multiplicity of contacts between the organization and its customers can be found by counting the total number of interactions that customers have with a particular organization’s employees – both marketing and non-marketing. These are sometimes referred to as ‘moments of truth’, and in a study of Scandinavian Airline Systems, Carlzon (1987) estimated them to be in the order of
50 million per annum.
From the consumer’s perspective, interaction can take a number of forms, dependent upon two principal factors.
1. Firstly, the importance of the encounter is influenced by whether it is the customer who is the recipient of the service, or whether it is the customer’s possessions.
2. Secondly, the nature of the encounter is influenced by the extent to which tangible elements are present within the service offer.

3.3.3 Servicescapes
The concept of a ‘Servicescape’ was developed by Booms and Bitner to emphasize the impact of the environment in which a service process takes place. If you were to try to describe the differences a customer encountered when entering a branch of McDonald’s, compared with a small family-owned restaurant, the concept of Servicescapes may be useful. Booms and Bitner defined a Servicescape as ‘The environment in which the service is assembled and in which seller and customer interact, combined with tangible commodities that facilitate performance or communication of the service’
(Booms and Bitner, 1981, p. 36). In the service encounter the customer is in the
‘factory’ and is part of the process. Production and consumption of the service are simultaneous. The design of a suitable service environment should explicitly consider the likely emotional states and expectations of target customers (Figure 3.4). Booms and Bitner
CHAPTER 3 THE SERVICE ENCOUNTER
80
03 Palmer 067-106 Revise 4/10/04 4:22 pm Page 80 distinguished between ‘high-load’ and ‘low-load’ environments, both of which can be used to suit particular emotional states and customer types. They noted that:
A high-load signifies a high information rate; a low-load represents a low information rate. Uncertainty, novelty, and complexity are associated with high-load environments; conversely a low-load environment communicates assurance, homogeneity, and simplicity. Bright colours, bright lights, loud noises, crowds, and movement are typical elements of a high-load environment, while their opposites are characteristic of a low-load environment. People’s emotional needs and reactions at a given time determine whether they will be attracted to a high- or a low-load environment.
(Booms and Bitner, 1981, p. 39)
3.3

It is often possible to programme machinery to provide a range of services reliably in a manner that would not have been possible if the encounter was based on a human service producer. Many telephone companies now offer a wide range of automated telephone services (e.g. call interception services) which can be delivered at lower cost and with higher levels of reliability than if human operators had to be used.
_ Automated encounters can give some customers a feeling of greater control over an encounter. A bank customer phoning the local branch to ask for the balance of his or her account may feel that he or she is having to work hard to get the information out of a bank employee and may feel intimidated by asking additional questions. By calling an automated banking information system or using an
Internet banking service, some customers may feel they have greater control over their dealings with the bank. (Although, against this, many services users may feel uncomfortable with computer-mediated services and would feel much happier with face-to-face encounters.)
By designing service processes around customers’ needs and the opportunities provided by the new technology, more efficient and effective service processes can be designed. As an example, many airlines have developed web-based electronic ticketing systems, which remove all need for direct intervention by the service provider’s employees until the point where the customer is about to board the aircraft (Figure
3.7).
3.7 INDUSTRIALIZING THE SERVICE ENCOUNTER
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Figure 3.7 easyJet claims to be the ‘Web’s favourite airline’ and has used the Internet effectively to simplify encounters between the company and its customers. By 2004, the company claimed that about
80% of its customers used the Internet for booking their tickets, saving administrative costs for the airline which are passed on in lower prices to customers. The company has refused to pay the 10–15% commission traditionally paid by airlines to travel agents. But to make sure that it doesn’t miss out on business from individuals or companies who would prefer to book through an agent, EasyJet nevertheless welcomes bookings through travel agents. However, it makes clear that travel agents should pass on their handling costs to the final customer, in recognition of the fact that a travel agent’s customer is buying a different kind of encounter. Despite the additional service charge, some customers still prefer the convenience and reassurance that dealing face-to-face with a travel agent may provide
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