Question

Explain how this case illustrates each of the seven major differences between goods producing and service providing businesses.

Answer 1

Differences Between Goods and Services

1. Goods are tangible while services are intangible. (Does Zappo’s manufacture shoes? No. The CEO says “Deliver WOW through service.”   And “They may only call once in their life, but that is our chance to wow them.” Zappo’s has a dual CBP with goods and services of roughly equal importance. That is, what does the customer buy? A bundle of goods and services.)
2. Customers participate in many service processes, activities, and transactions. (order entry, returns, calls to the call center—all create more uncertainty in delivery process).
3. The demand for services is more difficult to predict than the demand for goods. (customers can order via the web or call in at 3 am in the morning; time zones, convenience creates value, etc.)
4. Services cannot be stored as physical inventory (web and server capacity, call center staff and equipment capacity; capacity is the substitute for physical inventory in a service business).
5. Service management skills are paramount to a successful service encounter (face-to-face call center staff (humans) and the customer (humans); go over the three dimensions of service management; customer to Web page and software is also a set of service encounters but human to 100% technology interface so in some ways service management skills exists in the technology).
6. Service facilities typically need to be in close proximity to the customer (with Zappo’s virtual store the world is its market; no bricks and mortar here except at warehouses that have to supply the stores).
7. Patents do not protect services (no protection from a competitor setting up a similar virtual store for global markets; can also copy the return process system, order picking system, etc).

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