service design

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The Service Design Process

Services that are allowed to just happen rarely meet customer needs. World-class services that come to mind—McDonald’s, Nordstrom, Federal Express, Disney World—are all characterized by impeccable design. McDonald’s plans every action of its employees (including 49 steps to making perfect french fries); Nordstrom creates a pleasurable shopping environment with well-stocked shelves, live music, fresh flowers in the dressing rooms, and legendary salespersons; Federal Express designs every stage of the delivery process for efficiency and speed; and Disney World in Japan was so well designed that it impressed even the zero-defect Japanese.

When is movie rental by mail less convenient? . . . when a red box capitalizes on impulse rentals, low cost, and self-service at your local grocery store.

Christopher Sadowski/Splash News/NewsCom

The now familiar Redbox kiosk appearing in supermarkets throughout the United States was the brainchild of McDonald’s, who sought to bring fast-food prices and convenience to the movie rental market. Today, Redbox operates more than 25,000 kiosks in supermarkets, drug stores, and big box stores throughout the United States. Each kiosk holds 700 to 800 DVDs and more than 200 movie titles. Customers rent a DVD from the machine for $1 a day using their credit or debit cards, which can be charged an additional day’s rental if the DVD is not returned within a 24-hour period. The kiosk resembles a retro London phone booth and allows customers to search movies by title, actor, genre, popularity, and more. Customers can rent and return DVDs to any kiosk. A typical kiosk rents 140 DVDs per day and earns more than $50,000 annually in revenue.

McDonald’s eventually sold the company to Coinstar, a coin counting vending machine company that already had a presence and close relationship with the supermarket Industry. The location of the kiosks in grocery stores proved key to the service concept, as the regular flow of traffic and subsequent return home encouraged rentals. Reliable and easy-to-use kiosks were also essential to its success. For those, Redbox contracted with Flextronics, an electronics manufacturing service (EMS) provider, with expertise in lean manufacturing, Six Sigma, and quick turnarounds. Flextronics expanded the capacity of the original kiosks by 400%, reduced material costs by 25%, increased reliability to 99.75%, and introduced a quick-load module for adding up to 75 new DVDs to stock. In addition, Flextronics created designs for both indoor and outdoor kiosks, and integrated the hardware with server-side software to manage inventory from a central location. Remarkably, this was accomplished within an eighth-week time period.

Forty percent of Redbox’s DVD rentals come from three major studios, Warner Brothers, Universal Studios, and 20th Century Fox. It is this portion of the supply chain that gives Redbox headaches. Unhappy that new releases were offered new for just $1, these studios put an embargo on Redbox for 30 days after release, effectively blacklisting the company for refusing to rent new releases at a premium price. Redbox circumvented the studios by simply purchasing the new releases at Walmart, creating their own box art, and adding them to stock on the day of release. Litigation is ongoing. New service design that challenges the status quo can be rocky.

What do you see as the future of movie rentals, given on-demand cable access, video streaming on the Web, and other new technologies? How does a company prepare itself to adapt to these new environments?

The service concept defines the target customer and the desired customer experience. It also defines how our service is different from others and how it will compete in the marketplace. Sometimes services are successful because their service concept fills a previously unoccupied niche or differs from the generally accepted mode of operation. For example, Citibank offers 15-minute mortgage approvals through online computer networks with real estate offices, credit bureaus, and builder’s offices, and an expert system loan-application advisor. Amazon excels at customer service for online orders, and eBay’s worldwide reach creates more lively auctions with a huge community of buyers and sellers. Shouldice Hospital performs only inguinal hernia operations, for which its doctors are very experienced and its facilities carefully designed. Local anesthesia is used; patients walk into and out of the operating room under their own power; and telephones, televisions, and dining facilities are located in a communal area some distance from patient rooms. As a result, patients quickly become ambulatory, are discharged within hours (compared to normal week-long stays), and pay one-third less for their operations.

From the service concept, a service package is created to meet customer needs. The package consists of a mixture of physical items, sensual benefits, and psychological benefits. For a restaurant the physical items consist of the facility, food, drinks, tableware, napkins, and other touchable commodities. The sensual benefits include the taste and aroma of the food and the sights and sounds of the people. Psychological benefits are rest and relaxation, comfort, status, and a sense of well-being.

Effective service design recognizes and defines all the components of a service package. Finding the appropriate mix of physical items and sensual and psychological benefits and designing them to be consistent with each other and the service concept is also important. A fast-food restaurant promises nourishment with speed. The customer is served quickly and is expected to consume the food quickly. Thus, the tables, chairs, and booths are not designed to be comfortable, nor does their arrangement encourage lengthy or personal conversations. The service package is consistent. This is not the case for an upscale restaurant located in a renovated train station. The food is excellent, but it is difficult to enjoy a full-course meal sitting on wooden benches in a drafty facility, where conversations echo and tables shake when the trains pass by. In the hospitality industry, Marriott Corporation is known for its careful design of specialty hotels. From its Courtyard Marriott to Fairfield Inn to residential centers, each facility “fits” its clientele with a well-researched service package.

From the service package, service specifications are developed for performance, design, and delivery. Performance specifications outline expectations and requirements for general and specific customers. Performance specifications are converted into design specifications and, finally, delivery specifications (in lieu of manufacturing specifications).

Design specifications must describe the service in sufficient detail for the desired service experience to be replicated for different individuals at numerous locations. The specifications typically consist of activities to be performed, skill requirements and guidelines for service providers, and cost and time estimates. Facility size, location, and layout, as well as equipment needs, are also included. Delivery specifications outline the steps required in the work process, including the work schedule, deliverables, and the locations at which the work is to be performed.