8.3 New Service Development and Productised Services
Key Takeaways
Services differ from goods through intangibility, inseparability, heterogeneity and perishability.
Service design examines the service encounter, the value co-creating system and the sociocultural configuration.
A service blueprint separates frontstage actions from backstage actions and support processes along a line of visibility.
Productising a service packages it as a standard offer with defined scope and price so technology can scale it without proportional headcount.
Outcome-based pricing shifts risk to the provider, so outcomes must be precisely defined and verifiable.
8.3 New Service Development and Productised Services
Executive Summary: Services now make up most economic activity in advanced economies, and many product companies earn more from services than from products. Services differ from goods in ways that change how they are designed, priced and scaled. This section explains those differences, the three components of service design, service blueprinting, productised services and the choice of service pricing models.
How Services Differ from Products
Four characteristics, often remembered as IHIP, distinguish services:
| Characteristic | Meaning | Design implication |
|---|---|---|
| Intangibility | The customer cannot see or try the service before buying | Provide tangible evidence: reviews, guarantees, credentials, well-designed physical or digital spaces |
| Inseparability | Production and consumption happen at the same time | The customer and staff interaction is the product; train and support frontline staff |
| Heterogeneity (variability) | Quality varies between providers, times and customers | Standardise key steps, use checklists and technology to reduce variation |
| Perishability | Unused capacity cannot be stored | Manage demand with pricing, bookings and flexible staffing |
Services also tend to give access rather than ownership (a ride rather than a car), and they are co-created: the customer contributes information, effort or assets, so the outcome depends partly on them.
Three Components of Service Design
A useful way to analyse a new or existing service is to examine three components:
- The service encounter: the touchpoints where the user interacts with the service (website, app, call centre, counter) and the physical or digital evidence that the service took place (a confirmation, receipt, report or the visible result).
- The value co-creating system: the exchange of resources between the parties—what each contributes, whose needs are met and how each party perceives the value created. A peer-to-peer accommodation platform, for example, creates value for guests (affordable, distinctive stays) and hosts (income from unused property), and depends on mutual reviews to build trust.
- The sociocultural configuration: the social and cultural influences that shape how the service is understood and valued, and the artefacts (profiles, photos, apps, uniforms) that support it. Growth in the sharing economy and preferences for "authentic" experiences are examples.
Worked illustration: a telehealth service
| Component | Analysis |
|---|---|
| Service encounter | Booking app, video consultation, e-prescription and follow-up message as evidence of service |
| Value co-creation | Patients provide symptoms, history and home measurements; doctors provide diagnosis and advice; the platform provides scheduling, records and payment |
| Sociocultural configuration | Comfort with video calls after the pandemic, expectations of convenience, privacy concerns about health data |
The analysis shows where to invest: a smooth booking encounter, tools that help patients contribute accurate information, and visible privacy protections.
Developing a New Service Step by Step
New service development follows a similar logic to NPD, adapted to the features above:
- Define the service concept: who the customer is, what need is met and what the customer will experience.
- Map the customer journey: every step from first awareness to after-service follow-up, noting where customers feel friction or delight.
- Design the delivery system: the people, processes, technology and physical or digital spaces needed, including the capacity required at peak times.
- Prototype and pilot: run the service with a small group of real customers, observing where it breaks and how long each step takes.
- Train and equip staff: because inseparability makes frontline staff part of the product, they need clear standards and the authority to fix problems.
- Launch and measure: track service quality measures such as first-contact resolution, waiting times, customer satisfaction and repeat use, alongside cost per transaction.
Because services are easy to copy once visible, advantage usually comes from the hard-to-imitate delivery system—culture, trained people and integrated technology—rather than from the service idea itself.
Service Blueprinting
Lynn Shostack's service blueprint maps a service in layers: customer actions; frontstage staff actions the customer sees; the line of visibility; backstage actions the customer does not see; and support processes (systems, suppliers). Blueprints expose failure points and waiting times, show the cost of each step and help redesign services before launch.
Productised Services and Technology
Traditionally, a service business scaled only by adding people: twice the clients needed twice the consultants. Productising a service packages it as a standard offer with defined scope, deliverables and price (for example, a fixed-fee compliance health check). Technology—automation, data analytics and self-service portals—can then deliver parts of the service without proportional increases in staff, changing the cost structure and margins. Product companies make the reverse move, called servitisation, by adding services such as maintenance contracts, monitoring and "product as a service" subscriptions.
Choosing a Service Pricing Model
| Model | How it works | Main risk |
|---|---|---|
| Time-based | Charge per hour or day | Rewards effort rather than results; clients fear overruns |
| Fixed fee | Agreed price for a defined scope | Provider bears the cost of scope creep |
| Subscription | Recurring fee for ongoing access | Requires continuing value to prevent churn |
| Outcome-based | Fee linked to results achieved (for example, a share of savings) | Provider bears the risk of factors outside its control; outcome measures must be clear and verifiable |
Outcome-based pricing can be very attractive to clients because it shifts risk to the provider, but the provider must define the outcome precisely, agree how it will be measured and decide how to treat events beyond its control. The CPA's role is to model these risks and to recognise revenue appropriately under AASB 15 when the fee is variable.
A boutique hotel has 30 rooms. Rooms left empty tonight produce no revenue and cannot be sold tomorrow instead. Which service characteristic does this illustrate, and what is a typical response?
Perishability, managed with dynamic pricing and booking policies that smooth demand
Heterogeneity, managed by standardising check-in procedures
Inseparability, managed by training staff who deal with guests
Intangibility, managed by publishing guest reviews, star ratings and service guarantees
In analysing a peer-to-peer car-sharing service, an analyst notes that owners earn income from idle cars, renters gain cheap short-term access, and both rely on mutual ratings to trust each other. Which service design component is being analysed?
The line of visibility in a service blueprint
The value co-creating system
The service encounter
The sociocultural configuration
A consulting firm proposes to charge a client 20 percent of the procurement savings it achieves instead of an hourly rate. What is the main risk the firm must manage?
The arrangement turns the firm's fee into a fixed price that cannot change during the engagement
The client will pay more than budgeted if the project runs over its expected hours
The firm may earn little despite doing the work if savings fall short for reasons it cannot control
The firm will no longer need to measure its own costs on the engagement
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