SBP 2e: Perishable Output Illusion

This principle occurs with some services because customers regularly return for service–the illusion is that this is because the previous output perished when often the return for service is actually because the customer needs have advanced.

On occasion, people are confused about the perishable nature of services. In a sense, perishability is something that fundamentally differs between services and manufacturing. This was described in the Time Perishable Capacity Service Business Principle: production capacity without present demand is lost forever. It is the capacity of the service that perishes. However, sometimes capacity is confused with output. Capacity is a potential for production. Output is the end result of a process-what is ultimately delivered to the customer.

It is not a general truism that service output perishes. Further, it is not generally correct to differentiate manufacturing processes from service processes by claiming that the service output perishes. The fact is, as with manufacturing output, some service output is perishable and some is quite durable. Dr. Dorthy Riddle reminds us that “…differing degrees of [output] perishability exist in all three economic sectors.”¹⁾ (i.e. services, manufacturing, and agriculture/extractive) Manufactured goods can be perishable (e.g. bread), semi-durable (e.g. high-tech equipment), and durable (e.g. low-tech equipment). So also, service output can be perishable (e.g. cleaning, transportation, or communications), semi-durable (e.g. maintenance), or durable (e.g. research or education).²⁾

Nevertheless, there is a key element of perishability that does differ between services and manufactured goods: The primary cause of the apparent perishability. The most common cause of manufactured goods perishing is when they deteriorate and thus fail to meet their original design. On the other hand, the primary cause of perishability in services is the changing customer requirements.

Think of it this way: What perishability complaint might you have about a manufactured television set you purchased? If the television set worked fine when you purchased it, but only lasted one year before it completely broke down, you would blame the manufacturer, would you not? So also for a car that only lasts two days after the warrantee period expires, for a clothing item in which the buttons fall off after two washes in the washing machine, or the book whose pages fall out on the first reading. When manufactured items perish prematurely, we blame the manufacturer.

What about with services? What perishability complaint might we have about a service we receive? If you eat a meal at a restaurant and you are full, then you are hungry again in two hours, do you blame the restaurant? If you attend a comedy play and leave amused, but are sad again in a few hours, do you blame the actors or the theater? If your dentist fills your cavity, then you get another cavity in a different tooth, do you blame the dentist? In all of these cases, the appearance of perishability was not the fault of the service provider as much as it was caused by the changing and advancing needs of the customer.

Therefore, as with manufacturing output, some service output is perishable and some is quite durable. In either case, it is important to understand the advancing and changing needs of customers and to pay careful attention to customer retention.

We must carefully consider how the needs of customers change over time. Service companies often underestimate the value of customer retention and loyalty. In fact, one loyal customer can be more profitable than multiple one-time customers. After evaluating the value of customer loyalty, companies must decide on effective approaches to customer retention.

A service in which the output does in fact perish is a restaurant. However, over time people tend to get hungrier and hungrier, implying that the need for food is continually increasing.

There are a number of services which restore things to a previous state of better functionality. Dental services restore teeth to better condition. Auto repair restores vehicles to prior level. Dry cleaners restore clothing to a cleaner state. Even after a problem is solved by these restoration services, we are still likely to return since our needs for such services increases over time. (I.e. cars tend to deteriorate in the course of normal use, even if the previously repaired parts maintain their integrity.)

An example of a service that is extremely durable (even more than a washing machine) is education. Once a person has education, they can receive value from it for a great deal of time. If the output from education is so durable, then why do people go back for more education? It is because their needs are continually increasing over time. They may need more education to take advantage of more opportunities. In some instances, their prior education may become obsolete, meaning that in fact it is perishable.

Tax accounting is also very durable. Once the tax documents for a given year are complete, they function forever. However, each new year presents an entirely new need for tax accounting, which keeps tax accountants employed in perpetuity.

If photographs are printed on the correct type of paper they are extremely durable and will last a lifetime or more. But, of course, families continually return to photographers for family portraits. It is not because the “output” from the prior visits perished, but because of the changing “look” of the family, especially when new children arrive. (Example given by BYU student Jeff Watts.)

When a person flies to Seattle, the output (or result) of the transportation service is being in Seattle. People fly to Seattle because there is some value in being in Seattle at that time. Will they ever fly again? Certainly. It is not because the result of the flight perishes–for the passenger would still be in Seattle for a long time unless they go somewhere else. The reason people who fly to Seattle fly somewhere else is because they see that there is greater value in being somewhere else at a later time.

With manufacturing, outputs can be perishable (e.g. foodstuffs) or durable (e.g. large appliances). Nonperishable manufactured goods can serve changing needs (which will be addressed later under SBP: The Server-Ownership Perspective)

1. Do customers repeatedly return for the same service? If so, what is happening to the purchase-motivating need over time?
2. Do customers repeatedly return for a different service? If so, how is their need changing over time?

Do analysis of repeat business. List what is involved in gaining new customers. What are the customer recruitment activities (such as advertising, promotions, etc.) and what might they typically cost? What would it cost to increase retention of current customers? How frequently would a loyal customer typically come back? Why would they come back (i.e. how do their needs advance over time)? Estimate how many one-time customers would equal the revenues or profits of one loyal customer? Currently, what percentage of customers would you estimate are repeat customers? Comment on that percentage-is it high or low, avoidable or unavoidable, etc..