Service design and pricing
By: Steven Forth
Service design is emerging as a core discipline for redesigning products, converting them into services and then reconfiguring the organization. Like anything new, it has old roots and has been on a slow build for years before blossoming forth over the past five years. One of the early articles on service design was ‘Designing services that deliver’ by G.Lyn Shostack in the Harvard Business Review, back in January 1984. Her key points in this article are that service design is poorly understood relative to product design, it is often partial and ad-hoc, reactive to failure rather than shaping success, and that we need to take service design seriously. She even identified some of the critical failures in service design:
Isolating failure points
Establishing the time frame
Analyzing profitability
Pricing is an integral part of service design. There are several reasons for this. Of course one cannot analyze the profitability of a service without knowing how it is priced. Beyond this, price is part of how we experience a service, and pricing will shape how and when a service is used.
Despite this, most of the recent work on service design thinking ignores pricing (a notable exception is Majid Iqbal’s excellent book Thinking in Services which provides a detailed framework for how to think about value to the customer and value to the provider). Our goal at Ibbaka is to change this and to place value, and with value, price at the centre of service design.
To help us do this, we have developed a few simple service design rules and are developing a services design process that will take value and pricing into account.
Some simple rules for service design
Start before the beginning; end after the end - service design requires a wide temporal bandwidth
Look all ways - consider the people receiving the service, the people delivering the service and the wider social implications
Go beyond outcomes to experience - outcomes matter, but the experience that delivers the outcomes is part of the value
Go beyond experience to outcomes - experience matters, but the service has to deliver on its promised outcomes
Build the service around the price you will charge, how you will charge, and make sure that value to customer and value to provider are aligned
An even simpler process (for service design)
We can use these rules to inform a service design process. Many such processes exist, but the one we follow at Ibbaka is designed to inform pricing decisions. Here is the outline:
Map all of the customer touch points from initial awareness to after the service is retired
Look both ways – consider the people who are delivering the service and not just the customers (Southwest was good at this)
Unbundle the service into value streams – understand how each stream creates value at each touch point, how it is delivered and what the dependencies are
Recombine and explore different ways to deliver each value stream and different ways to combine the value streams
Evolve the service – gather the metrics that will improve value delivered and cost to serve
This process needs to be embedded in the context of purpose, the ‘Why’ of the service. The provider, the user, the people providing the service and other stakeholders may all have different ‘Whys.’ Uncovering the relations between these, and how they change across the touch points where the service is delivered can help uncover tensions.
Ask ‘Why is the provider offering this service?’ ‘How will it provide value to the provider?’ For example, imagine you are designing an application to manage waiting times at walk-in clinics. Why would the clinics want this? Do they wait times really disrupt them? Perhaps, if the wait times reflect a poor match of services to demand and if better management of wait times leads to better utilization rates. In many service businesses including operating a clinic, staff utilization is an important input into profitability.
The same questions need to be asked of the buyers and users of the service. Why does the service matter to them, how will they consume it, is the service the experience or do other outcomes matter? Look for contradictions and tensions that could disrupt design or delivery. Are users of a walk-in clinic primarily concerned about wait time, part of the experience, or are the health outcomes paramount? One reason clinics (and healthcare generally) has such a problem with wait times is that most stakeholders agree that the outcomes are more important than the experience (although there is growing evidence that the experience conditions the outcomes, and that the two are not independent of each other).
One can map from this service design process to pricing as follows:
Pricing considerations touch each step of service design. Overlooking these will compromise the service and it is price that connects value to the user with value to the provider. The design and pricing of services is one of the most important success levers going forward.
