Service as a SKU (article)

Going through my browser bookmarks the other day I rediscovered an intriguing article by Alex Rampell (published on TechCrunch on 2012-05-14): Service as a SKU. A SKU, or stock-keeping unit, describes variants of physical products, e.g. cotton t-shirt (navy blue, XL, V-neck). The same t-shirt in e.g. a different size or colour would constitute a different SKU.

Alex writes about what it would take to market offline services in an online marketplace. In particular, it is necessary to specify the nature of the service in detail — just like you would do with a SKU in a physical-products context.

The article is a good read and made me think of the following:

When service packages intentionally are being made comparable, how can one service be successfully differentiated from another? Price-based differentiation may be tempting but could well lead to a race to the bottom. Alex mentions customer feedback, i.e. rating and reviews, as one possible source of differentiation.

Alex’s examples specify the service outcome, so the service experience remains as a potentially differentiating element of the service result. But will service providers in the real world be able or willing to specify the service outcome (e.g. leaking toilet fixed, dental crown fixed), or is it more likely that service activities will be specified (1 hour of trying to fix the leaking toilet, excluding material)? Would customers be wiling to buy a specified service outcome, as the price would have to include risk-adjusted costs for material (maybe material is needed, maybe not)?

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6 thoughts on “Service as a SKU (article)

  1. Gene Hughson

    It’s definitely a trap (on the provider end) to only look at price as a differentiator. In the past few months I’ve seen articles about brick and mortar retailers attempting to price-match online retailers – crazy! Instead of worrying about the “death of” articles, the B&Ms should be showcasing service and convenience, while simultaneously promoting their online presence to capture the showroomers.

    Reply
    1. oliverbaier Post author

      Hi Gene,

      Thank you for taking the time to comment on my post. I have seen PR initiatives of local retailers, in particular bookstores, demonising e-commerce retail. The ‘unfair price competition by online retailers’ was a primary complaint as well as ‘customers’ failure to appreciate the good service offered by local retailers’. Well, that all brings us back to service value…either the customer ‘doesn’t get it’ or maybe the customer doesn’t agree that the service is that good.

      In fact, digital services can offer significant benefits to brick & mortar stores, and brick & mortar stores can successfully differentiate themselves from online retailers. There’s an interesting book by Andreas Haberlein on The digital future of stationary commerce (my translation of Die digitale Zukunft des stationären Handels; unfortunately only available in German) discussing current developments and future potential of digital services for brick & mortar operations.

      We have somewhat focused on retail services here, which can be considered somewhat simple in the context of the TechCrunch article as there are in fact ‘real’ SKUs involved. What about less tangible services? How to describe and package repairing the car, doing the garden, or reviewing the design of a website?

      Cheers,
      Oliver

      Reply
      1. Gene Hughson

        Oliver, while services around the provision of goods are different from “pure” services, I think many similarities remain. The key is to find not only what the customer wants (“repairing the car”), but what can keep that customer coming back. Some aspects have little or no effective cost (e.g. The mechanic I use is extremely honest. Whatever he loses by telling me that the tires are wearing vs saying that they must be replaced is more than made up when I bring my vehicle back and refer others to him). Other premiums around a base service increase costs and must be evaluated against the additional business they bring in. Most non-product services are going to be harder to comparison shop because there are so many variations around even the base service (using my example above, this only works because the mechanic is also competent – absent that, his honesty would be less valuable because I wouldn’t be getting the main thing I need).

      2. oliverbaier Post author

        Gene, no disagreement here: a service is a service is a service, and so they all share characteristics…some services are more, some are less similar to each other. I like your car mechanic example, and it sounds like I’d like the mechanic, too.

        In terms of an earlier post, your mechanic’s competence would result in favourable service outcomes (i.e. successful repairs or maintenance), while his honesty would result in favourable service experiences.

        An online marketplace for (offline) services seems likely to gravitate towards emphasising–in service marketing parlance–a service’s search attributes. In this context, this makes the service discoverable, but also reduces its differentiation. The challenge then will be to supplement these common/shared/comparable service attributes by other, differentiating attributes (e.g. your car mechanic’s honesty). These differentiating attributes seem likely to be experience attributes or even credence attributes.

      3. Gene Hughson

        Indeed. Credence is an interesting problem in that the credibility of the marketplace is as important, if not more so, as that of the service provider.

      4. oliverbaier Post author

        Very good point. Taking this further, credence also relates to customers providing ratings & reviews: every once in a while I see reviewers being challenged by other customers in Amazon. Without this discussion feature, ratings & reviews wouldn’t be as powerful.

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