Service Profitability: An Augmented Customer Lifetime Value Approach

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Title: Service Profitability: An Augmented Customer Lifetime Value Approach
Author: Nyman, Henrich
Other contributor: Svenska handelshögskolan, institutionen för marknadsföring, marknadsföring
Hanken School of Economics, Department of Marketing, Marketing
Publisher: Svenska handelshögskolan
Date: 2013-12-18
Language: eng
Belongs to series: Economics and Society – 256
ISBN: 978-952-232-216-6 (printed)
978-952-232-217-3 (PDF)
ISSN: 0424-7256
Abstract: To twist an old saying into ‘service logic’, one could express the ongoing paradigm shift in service marketing as – ‘service is not as usual, anymore’. This thesis argues for adopting service logic on profitability and, thus, for studying ‘service’ (singular) profitability as a divergent concept from ‘services’ (plural) profitability. For the uninitiated into the recent theoretical development within service marketing, the concepts of service and services might at a first glance appear indistinguishable. However, there is more to the concept of service in contrast to services and, hence, to the rationale for conceptualising service profitability as distinct from services profitability, than just omitting the letter -s from the word ‘service’. An increasingly growing body of the service marketing literature challenges the traditional services paradigm, in which services have been characterised as different from goods by four distinguishing ‘IHIP’ characteristics: ‘intangibility’, ‘heterogeneity’, ‘inseparability’ and ‘perishability’. The definitions of the IHIP characteristics are found to be too narrow and outdated as generic service characteristics. What is more, the ‘IHIP’ characteristics are not universally applicable to all services during all stages of the service process and fail to set apart services from goods in general. Most severely, the ‘IHIP’ characteristics are still based on the same goods- or manufacturing-centred logic that they are claimed to differ from. In contrast to services (plural) as a distinct category of market offerings, the contemporary perspectives on service (singular) represent various ways of thinking and, thus, logics or mental models on value creation from the customer’s point of view, founded on ‘value in use’. However, in emphasising value creation from the customers’ perspective, the contemporary perspectives on service pay considerably less attention, if at all, to the financial value of service from the service provider’s perspective and, as a result, to service profitability. Purposely, this thesis adopts a provider perspective on service by conceptualising service as consisting of two distinct processes: the service sales process and the service provision process. Nevertheless, the customer perspective on these processes is imperative for the financial consequences of the service. From the customers’ perspective, the service sales process deals with value propositions, which indicates that service offerings are not the final result of an economic activity but should add value for customers. Moreover, from the customers’ perspective, the service provision process comprises value facilitation, i.e. the facilitation of the customers’ value-creation activities. Consequently, this thesis argues that the concept of service profitability could be characterised as the financial outcome of service sales and service provision, wherein the service provider’s facilitation and support of the customers’ value creation activities is paramount.
Subject: service logic
value facilitation
value proposition
service sales
service provision

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