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Product Services Portfolio: Strategic and Marketing Insight:
Valeria Mathieu, IAE Aix-en-Provence, FRANCE
Abstract
This article is based on a pragmatic classification of product services: a service
supporting the supplier's product is opposed to a service supporting the client's action in
relation to the supplier's product. These two kind of services are discussed and compared
on three main dimensions: the sources of competitive advantage, the predominant
variables of the service marketing mix, and the globalization potential.
Introduction
Traditionally, the dominant strategy in industrial markets uas focused on product
excellence. The attention is now shifting from just selling to customers to serving them
effectively (Parasuraman 1998). In the past, manufacturing companies lariieK limned
their service offering to repair, maintenance, and complaint handling, and for many \ears.
the manufacturing field perceived service ab a harmless neeessit) (Drueker l%2j. Tuda>,
manufacturing companies are realizing that they can reinforce their competitive positions
by implementing service strategy (Berry and Parasuraman 1991: Bitner 1997).
Consequently, the service challenge within the manufacturing sector has received an
increasing attention both in business practice and in marketing literature. However, now
the strategy for product services has arrived at a sort of maturity stage, and Levitt's
famous provocation (1972) appears to be true: everybody is in the service generic
business. Consequently, it is no longer enough for manufacturing firms just to offer some
generic kind of service in order to ensure a competitive advantage. Since all firms offer
service to varying degrees, some authors stress the importance of dealing with service
strategy more pro-actively (Samli, Jacobs and Willis, 1992; Frambach et a/., 1997).
Additionally, Parasuraman (1998) points out that research is needed to uncover and
understand the conditions under which superior service is likely to be a source of
sustainable competitive advantage.
By challenging the traditional perspective of product services in the business marketing
literature, the article aims to improve both the understanding and the management of the
product services portfolio of manufacturing firms. Based on an original classification
system that isolates and compares two types of product services, services that support the
supplier's product and services that support the client's action in relation to the supplier's
product, the article develops a series of propositions in order to deal more effectively
with the variety of product services offering. After presenting this classification scheme,
the two kind of product services will be compared regarding the sources of competitive
1 Valeric Mathieu, IAE Aix-en-Provence, 13540 Puyricard, FRANCE,.Tel: 33 4 42 28 08 08 Fax: 33 4 42
28 08 00, e-mail: xjjM!.].!.^.h^k!l!..v:<l!.x,ir
in McLoughlin, Damien. and C. Horan (eds.), Proceedings of The 15th Annual IMP Conference,
University College, Dublin 1999
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advantage, the dominant variables of the service marketing mix. and the globalization
potential.
Presentation ol the product services portfolio
Hunt (1976) demonstrated the importance of classification schemes in marketing. More
recently. Parasuraman (1998) has claimed the importance of research focused on refining
the classification and enhancing the understanding of customer service The proposed
portfolio of product services is both a classification scheme challenging the traditional
classifications, and a managerial tool useful at a specific company level embracing the
diversity of its service offerings.
The outstanding classification of product services is based on whether the sen ice is
offered before, during, or after the sale (Lalonde and Zinszer 1976). This classification
may be attacked at least on three main points. First, this classification fits quite well with
the traditional approach of industrial buying (transaction-oriented), but it is less relevant
within the interactive paradigm where each sale is approached as an episode of a longlasting relationship between the buying firm and the selling firm. As a matter of fact,
according to the logic of the interactive approach each after-sale service may be
considered as a potential before-sale service for a next sale episode. Second, other
classification schemes have been recently proposed. In particular, Frambach el ai (1997)
have proposed that product services can be classified as either transaction related or
relationship related. Third, literature has stressed the distinction between a traditional
service such as after-sale services, and a more advanced one (C espedes. 1994) such as
information technology consulting. Burger and Cann (1995) feel that the traditional
services such as guarantees and maintenance are no longer enough, hven if suppliers
must keep offering traditional product services, they must also consider the everincreasing customer expectations and design service solutions that respond to them
(Lanciom 1995). Consequently, original classification of product services may contribute
to regenerate the traditional approach. Classification of product services can gain insights
from both services classification and business services classifications.
The goods vs. services marketing debate is characteristic of the early publications in the
services marketing literature (Fisk et ai. 1993). Now, research is more focused on ho\\
services differ among themselves (Bowen 1990; Ghose 1994; Cunmngham et al. 1997).
Various classification schemes have been suggested for services (Judd, 1964; Rathmell,
1974; Shostack, 1977; Hill, 1977), but Lovelock's classification (1983) is acknowledged
to focus more on strategic insights than on operational aspects (Bateson 1995). The
classification proposed by Lovelock is based on two fundamental questions: At whom (or
what) is the activity directed? And is this activity tangible or intangible? The first
question makes a distinction between services for people (e.g., passenger transportation,
health care, fitness centers, etc.), and services for people's possessions (e.g., freight
transportation, repair and maintenance, warehousing, etc.).
In the businee to business field, one of the very first classifications considers four
different types of services (Aljian and Farrel 1982): professional, facilities and
in McLoughlin, Damien. and C. Horan (eds.), Proceedings of The 15th Annual IMP Conference.
University College, Dublin 1999
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equipment-related, personnel-related, and labor and craft services. Recently, Jackson et
al. (1995) distinguished maintenance, repair, and operation services (referred to as MRO
services) from production services, and Boyt and Harvey (1997) classified industrial
services into elementary services, intermediate services, and intricate services. However,
according to Fitzsimmons et al. (1998), these different classifications are not powerful
enough in order to categorize all business services, and to recognize unique aspects of
industrial purchasing decisions. Consequently, these authors have proposed expanding
Lovelock's typology of service recipients to include the business process.
The product services portfolio proposed in this article makes a distinction between a
service which supports the supplier's product (hereinafter termed SSP). and a sen ice
which supports the client's action in relation to the supplier s product (hereinafter termed
SSC). The purpose of an SSP is limited to fixing problems directly and clearly related to
the supplier's product. For example, maintenance services fix quality problems on
supplier's product, and physical distribution fixes problems related to the transportation
of supplier's product. On the contrary, an SSC is focused on the client's process, and aims
to fix problems on the client's side. For example, when the supplier helps the client
design his own application, the focus is more on the client than on the supplier's product.
A training service may be approached by the same way: the goal of training is to enhance
the client's ability to use the supplier's product. SSP fits the traditional view of a service
offering in the business market, whereas SSC requires a more advanced perspective of
the product services offerings. The purpose of this classification is to emphasize that
marketers of advanced services require intimate knowledge of the client's operations and
how the service will support core activities. For advanced services, we argue that the
supplier's work concerning the service offer never really ends: the mission is not just to
make the product work but to help the client maximize all the different actions and
processes that are associated with the supplier's product. This classification is a
constructive answer to the emerging criticism addressed to the traditional classification,
by promoting a more innovative approach of product services strategy. Moreover, it is
coherent with the dominant service classifications based on the service recipient (i.e.,
people YS people's possessions), and integrated in the business to business field by
Fitzsimmons et al. (1998). As table 1 illustrates, SSP and SSC can be compared on three
main dimensions: the sources of competitive advantage, the predominant variables of the
service marketing mix, and the globalization drivers. The following parts discuss these
three dimensions and their implications on product services management.
The product services portfolio and the sources of competitive advantage
Product services offering makes the manufacturing company enter a new competitive
field, meaning the service providing field. As a result, in order to get efficient in this new
competitive environment, the manufacturing firm must build its own competitive
advantage, meaning achieving superior performance. Literature has suggested that
competitive advantage in service industries reveals some specificity, and that the type of
service has a moderating effect (Bharadwaj et al. 1993). Consequently, it is safe to
question the meaning of competitive advantage for the two types of product services
discussed in this article. Literature focuses on questioning more the specificity of
in McLoughlin, Damien. and C. Horan (eds.), Proceedings oj The 15th Annual IMP Conference,
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resources and skills for achieving competitive advantage in services than the uniqueness
of competitive advantage in services (Bharadwaj ct nl. 1^; Malthyssens and
Vandenbempt 1998). This is the reason why this section discusses the skills and resources
that are the more likely to drive at competitive advantage for product services activities.
Service Supporting the
Supplier's Product
Direct recipient
Sources of competitive
advantage
Predominant variables
of the service marketing
mix
Globalization potential
Product
Economies of scale
Linkages between product
and service activities
Physical evidence
Process
Market drivers
Cost drivers
Table 1 Product services classification
Service Supporting the
Client's Action in relation to
the supplier's product
People
Organizational Culture
Reputation
Relationship
People
Weaker potential
The bulk of SSP is connected to physical distribution and technical support. The delivery
of these services heavily depends on equipment such as trucks, warehouses, and
computerized systems for physical distribution, or technical fittings for technical support.
Additionally, new technologies have reshaped many of these services (e.g., remote
diagnostic, remote repair and assistance, impact of IT on logistics). On the contrary, deep
and serious solutions to client's problems call for a high involvement of supplier's
employees (e.g., engineers from R&D and production departments). Consequently, most
of the SSP are equipment-intensive, whereas most of the SSC are people-intensive (a
continuum would best represent this opposition). Literature has suggested a positive
relationship between the extent of equipment of a service industry and the importance of
economies of scale as a source of competitive advantage (Bharadwaj et al. 1993).
Additionally, Qumn and Gagnon (1986) have pointed out that the application of new
technologies in service industries has permitted firms to realize significant scale
economies. On the other hand, because SSP deals with problems and issues related to
supplier's product, whereas SSC deals with problems and issues related to client's
process, it is easier for the supplier to standardize SSP than SSC. Now, it is
acknowledged that standardization of products or processes is an essential condition for
entering cost advantage strategies.
In summary, owing to different characteristics of SSP (equipment-intensive, relevance
and application of new technologies, potential for standardization), and SSC (people
intensive, weaker potential for standardi/ation). the following proposition is formulated:
PI. Economics of scale are a source of competitive cost advantage more relevant
for SSP than for SSC.
Literature has proposed that the greater the people intensity of a service mdustrv. the
greater the importance of culture as a source of competitive advantage (Bharadwaj et al.
1993). Indeed, the more the service delivery depends on the service employees, the more
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employees' behavior is essential in the customer's evaluation. Deshpande and Webster
(1989) defined organizational culture as "the pattern of shared values and beliefs that help
individuals understand organizational functioning and thus provide them v\ ith the norms
for behavior in the organization". Strong culture can help attain a shared vision and goal
congruence among employees to meet organizational goals (Wilkms and Ouchi 19*3).
empower employees (Pascale 1985), and manage service quality (Schneider and Bowen
1995). Because most of the SSP are equipment-intensive, wherein most of the SSC are
people-intensive, we suggest:
?2- Culture is a source of competitive advantage more relevant tor SSC than tor
SSP.
Based on a classification of properties of offerings proposed by economists (Nelson
1970; Darby and Kami 1973), service marketing literature has traditionally opposed
goods to services on their evaluation processes (Zeithaml 1981). Three different types of
attributes are usually discussed: search qualities, experience qualities, and credence
qualities. The attributes that customers use to evaluate tangible goods are mostly search
qualities, properties that can be evaluated by the client before the sale is made (i.e., color,
price, style, size). Most of the services possess a greater number of experience qualities,
properties that can be evaluated only after the purchase (i.e., taste, wearability). Some
extreme services (i.e., medical surgery, lawyer's services) are characterized by credence
qualities, attributes that the consumer may find impossible to evaluate even after
purchase and consumption. Offerings high in search qualities are the easiest to evaluate,
whereas offerings high in credence qualities are the most difficult to evaluate. When
clients experience difficulties in evaluating the service provider and the quality of service
offering, they will be forced to reduce this perceived risk by relying on service tangible
clues, supplier's reputation and image (Rust et al. 1996, p. 19). It has also been suggested
that the greater the experience and credence attributes of a service, the greater the
importance of relationships as a source of competitive differentiation advantage
(Bharadwaj et al. 1993). Relationships lower the perceived risk (Crosby and al. 1990). by
establishing strong social and personal ties \\ith consumers (Czepiel 1^90). Because most
of the SSP are dedicated to fix problems with supplier's product, the client ma\ easil\
evaluate the service after the delivery (i.e., delivery within the required time, a machine
repaired). On the contrary, because SSC aims to help the client maximize all the different
actions and processes that are associated with the supplier's product, the client may have
some difficulties to evaluate the service even after the delivery. In this case, the client has
to believe that his supplier has done his best to improve the process. Consequently, SSC
is more associated with credence attributes. This opposition is consistent with
Fitzsimmons et al. (1998) who propose that as the focus of service moves from property
to people and process, the service becomes more difficult to evaluate. However, from a
conceptual point of view, it is again more comfortable to represent this opposition
through a continuum. The intensity of the relationship is expected to be lower for an SSP
than for an SSC, regarding the potential number of people and departments involved, the
level of involvement between parties, and the importance of commitment-trust between
parties.
P3a : Reputation is a source of competitive advantage more important for SSC than
for SSP
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P3iv Relationships are a source of competitive advantage more important for SSC
than for SSP.
SSP focuses on supplier's product whereas SSC focuses on client's problem. Therefore, it
can be argued that SSP is closer to the traditional supplier's competence than SSC is. In
particular, the supplier may rely on his product knowledge in delivering SSP. For
example, advanced maintenance, called preventive maintenance, is often based on an
innovative design of the product. Consequently, the extent of linkages between goods and
service activities is an important source of competitive advantage in the case of an SSP.
The suppliers get the opportunity to capitalize on their expenences, their expertises, and
their controls on the manufacturing process to build a strong SSP.
P4 : Linkages between goods and service activities are a source of competitive
advantage more important for SSP than for SSC
This part has proposed to oppose an SSP to an SSC regarding the sources of competitive
advantage (table 1). Economies of scale and linkages bemeen product and service
activities are the most relevant sources for an SSP Organizational culture, reputation, and
relationship are more relevant in the case of an SSC
The product services portfolio and the services marketing mix
The marketing mix contains the main variables that a firm can use for satisfying its target
market (McCarthy and Perreault 1987, p.35). Because of the distinguishing
characteristics of services, Booms and Bitner (1981) proposed an expanded marketing
mix for services consisting of the four traditional elements (product, price, place,
promotion) and three new ones: physical evidence, people, and process. People are
defined as "all human actors who play a part in service delivery and thus influence the
buyer's perceptions; namely, the firm's personnel, the customer, and other customers in
the service environment" (Zeithaml and Bitner 1996, p.26). Physical evidence is
approached as "the environment in which the service is delivered and where the firm and
customer interact, and any tangible components that facilitate performance or
communication of the service" (Zeithaml and Bitner 1996, p.26). Process contains "the
actual procedures, mechanisms, and flow of activities by which the service is deliveredthe service delivery and operating systems" (Zeithaml and Bitner 1996. p.27). Although
the service marketing mix has initially referred to the consumer market, it is sate to
extend it to the business market. In particular a recent qualitative survev in the field of
business services (Mathyssens and Vandendempt 1998) has suggested that people,
physical evidence (e.g.. brochures and interactive Internet sues), and process (e.g.. ISO
and FFQM quality standards) are important variables in providing value to the clients
An important part of the delivery process is based on se\cral tangible components in the
case of a SSP, whereas this part is less important in the case of a SSC'. This is coherent
with the preceding discussion approaching SSP as equipment-based sen ices and SSC as
people-based services. For example, the delivery process of physical distribution is based
on trucks, packaging, uniforms of drivers. In the case of technical support the tangible
components are technical fittings, or hardware that field engineers may use and carry.
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Consequently, physical evidence is expected to play a greater role in the clients
evaluation of an SSP than in the evaluation of an SSC.
P>: The role of physical evidence is greater in the SSP evaluation and
performance than in the SSC evaluation and performance.
On the contrary, SSC performance is largely more based on people. Because SSC deals
with client's problem, both technical and relational skills are important for achieving a
high service performance. Technical skills are essential for designing and implementing
solutions to client's problem, but relational skills equally are fundamental in order to
establish the trust climate for discussing complex and often strategic problems. Three
kinds of people must be distinguished: the supplier's employees, the mam people in
contact within the client's organization and other people from the client's organization
susceptible and inclined to impact service performance (through active or passive
participation in the service delivery process).
PG: The role of people is greater in the SSC evaluation and performance than in
the SSP evaluation and performance.
SSP is naturally more customized (due to a certain level of recurrence among problems
from supplier's product) than SSC is (due to the uniqueness of client). Additionally,
standards of efficiency for SSP are closely connected to rapidity (i.e., quick delivery
time, quick answer to a technical problem on supplier's product). On the contrary, SSC' is
less sensitive to such a criteria because the service is often defined in a longer perspective
(both clients and suppliers agree that it may take time maximizing all the different actions
and processes that are associated with the supplier's product). Consequently, process, and
especially the technical side of this process (operational flow of activities, standardization
of the process, use of information technology), is essential for providing the efficient and
seamless service expected in the case of the SSP.
?-/: The role of process is greater in the SSP evaluation and performance than in
the SSC evaluation and performance.
This part has suggested opposing an SSP to an SSC regarding the predominant variables
of the service marketing mix (table 1). The predominant variables are physical evidence
and process in the case of an SSP, whereas this is people for an SSC.
Globalization of product services portfolio
The necessity to figure out global issues related to product services portfolio stemmed
from a basic and simple observation: both service and globahzation characterize maturity
strategies. When technological superiority is more and more difficult to maintain as a
lasting strategy (Lele 1986 ; Gronroos 1990, p. 15-17), and when low price as a
differentiating strategy is also challenging (Zeithmal and Bitner 1996), one of the tew
remaining competitive strategy is closely connected to the development of a service
strategy (Vandermerwe and Rada 1988 ; Bowen et al. 1989 : Roscitt and Parquet 1990).
On the other hand, maturity in domestic markets also push firm to expand globally (Hutt
and Speh 1998, p. 262). Consequently, most of the manufacturing firms implementing
service strategy must be concerned by service globalizalion. Definite!), one of the very
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issues is to question whether there exist or not a potential for globalizing service
activities.
A global strategy means the worldwide integration of strategy formulation and
implementation. Such a strategy is "appropriate for global industries which are defined as
those in which a firm's competitive position in one national market is significantly
affected by its competitive position in other national markets" (Hout el c// 19S2). Such
interactions between a firm's positions in different markets ma\ arise from scale benefits
or from the potential of synergies or sharing of costs and resouiees across markets.
However a global strategy is also proactive in the sense that scale and synergy effects
may often be created by strategic actions of companies. Although globahzation has
initially referred to the manufacturing sector, interest is emerging concerning the
applicability and specificity of globahzation in the service sector (Mathe and Perras 1994
; Lovelock and Yip 1996). Globahzation potential depends on globahzation drivers and
these drivers are industry specific. Four categories of industry drivers favor globahzation
(Yip 1995): market drivers, competition drivers, cost drivers, and government drivers.
Market drivers depend on the nature of client's behavior, and the more client's needs are
common across countries the greater the potential for globahzation. Competition drivers
refer to the existence of global competitors. Cost drivers mean the presence of global
scale economies. Government drivers illustrate favorable trade policies. Because it is
admitted that these different drivers are industry specific, it is relevant to discuss them
regarding globahzation potential of SSP vs. SSC. The propositions focus on the two most
important drivers: market drivers and cost drivers.
An important component of market drivers is related to the existence of global customers
searching the world for suppliers. On one hand, global customers are much more
important in business to business markets than in consumer markets. On the other hand.
global customers have been recognized of particular significance to many service
industries (Lovelock 1996, p.541). However SSP and SSC differ regarding this specific
driver. Because SSP supports the supplier's product, the issue of its globahzation is
closely related to the globalization potential of the supplier's product. On the contrary,
SSC supports the client, then its globalization is connected to the globahzation potential
of the client's problem (in relation with the supplier's product). Now, the globalization
product is an intense trend in many manufacturing sectors, whereas SSC is by definition
more customized, and so less global. It is safe to suggest that globalization potential is
higher for supplier's product than for client's problems.
P8 : From a broad point of view, market globalization drivers are more significant
for an SSP than for an SSC.
P9 : The greater the globalization of the supplier's product, the greater the potential
globalization of the SSP.
One of the main cost drivers is related to global economies of scale. They apply when
single-country markets are not large enough to allow competitors to achieve optimum
scale. Scale can then be increased through participation in multiple markets, combined
with product standardization and/or concentration of selected value activities. Owing to
the decentralization of the service production process to a local level, the people as part
in McLoughlin, Damien. and C. Horan (eds.), Proceedings of The 15"' Annual IMP Conference,
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of the process, and the inseparability of production and consumption, the potential for
achieving a competitive cost advantage by exploiting economies of scale has traditionally
been viewed as modest in services. Nevertheless, opportunities for exploiting scale
economies are significantly greater in equipment-based service industries, than in peoplebased service industries (Bharadwaj et al. 1993). Service firms can also achieve
economies of scale by centralizing service production facilities with decentralizing
customer-contact, or centralizing some activities and localizing others. This centralization
may be supported by the application of new technologies (e.g., remote diagnostic and
maintenance). Considering that SSP is equipment-based whereas SSC is people-based,
and that former is more standardized than latter, we suggest:
PIO: From a broad point of view, global economies of scale are a globalization
driver more relevant for an SSP than for an SSC.
This last part has approached the globalization potential of product services (table 1). It
appears that this potential is higher for an SSP than for an SSC Moreover, it has been
proposed that global economies of scale are potentially ereater for an SSP than for an
SSC
Concluding comments
Broadly, the article has aimed to contribute to the field of product services and to increase
the knowledge concerning the meaning and the management of such service offerings.
Based on an original classification of product services, we have developed a series of
propositions dealing more effectively with the variety of product services offerings. This
article leans on the distinction between a service supporting the supplier's product (SSP)
and a service supporting the client's action in relation to the supplier's product (SSC). The
propositions compares the SSP and the SSC on three main dimensions: the sources of
competitive advantage, the predominant variables of the service marketing mix, and the
globalization potential. First, we have proposed that economies of scale and linkages
between product and service activities are the mam sources of competitive advantage for
SSP, whereas these sources are more connected to organizational culture, reputation, and
relationship in the case of SSC. Second, the predominant variables of the SSP marketing
mix are physical evidence and process, whereas people are predominant in the case of the
SSC. Lastly, globalization potential is suggested to be greater for SSP than for SSC.
This article is a first contribution to the understanding of basic issues acknowledged to he
neglected by literature: product services offerings, strategie emphasis in services, and
globalization of services. Obviously, this contribution is on!\ conceptual, and more
additional research is needed, in particular empirical research.
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