David O'Flaherty-Servitization-Dissertation

An Investigation into the Implementation of Servitization
and its Impact on Firm Performance within the Irish
Health and Fitness Industry
David O’Flaherty-15333330
Submitted to the Master of Business and Management, School of Business
Trinity College Dublin
College Green
Dublin 2
Ireland
MSc Business & Management
Supervisor: Professor John Mangan
July 2016

i
Declaration
I declare that this thesis has not been submitted as an exercise for a degree at this or any other
university and that it is entirely my own work. I agree to deposit this thesis in the University’s
open access repository or allow the Library to do so on my behalf, subject to Irish Copyright
Legislation and Trinity College Library conditions of use and acknowledgement.
David O’Flaherty
__________________________
2016

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Abstract
The landscape of the Health and Fitness industry has evolved significantly since its inception
as part of public health reforms in the nineteenth century. The industry initially focused on the
health status and well-being of people. However, as individuals have become increasingly body
conscious over time, the industry has adapted and began to offer services in addition to basic
membership, in a bid to meet the changing needs of their customers. The phrase ‘Health and
Fitness’ has developed into an umbrella term that now incorporates health, fitness, body image
and beauty. Health and Fitness clubs have shifted towards a more service led approach in
pursuit of attaining greater levels of customer satisfaction and increased revenue streams.
However, the research in this area is scant and under developed.
This research study is an investigation into the implementation of servitization within the
Health and Fitness industry and how it impacts on firm performance. This study examines the
different implications associated with implementing servitization within the industry. The
study adopts a mixed methods approach. Data on the additional services offered by Health and
Fitness clubs is gathered from three experienced General Managers employed by clubs within
Ireland. Additionally, members of Irish Health and Fitness clubs were surveyed to measure
their perceptions and expectations of the additional services on offer to them. These findings
were illustrated through the use of an Importance-Performance Analysis (IPA) matrix.
The findings agree with the hypothesis put forward at the beginning of the research that the
implementation of servitization increases the firm performance of a Health and Fitness club.
Servitization was shown to increase customer loyalty and also increase revenue for Health and
Fitness clubs. However, the findings also highlight that despite firm performance increasing,
the use of servitization within Irish Health and Fitness clubs is underperforming. The findings
of this research study are analysed as part of a discussion chapter. The importance and
relevance of the findings are detailed and also compared and contrasted with empirical studies
of a similar nature. Finally a conclusion and recommendations section offers an overview and
summery of the research study and puts forward five recommendations. These
recommendations aim to guide Health and Fitness clubs in the implementing, maintaining and
maximising of servitization to increase firm performance.

iii
Acknowledgements
I would like to take this opportunity to express my sincere gratitude towards my supervisor
Professor John Mangan for his support, guidance and help throughout the completion of this
dissertation.
I would also like to thank Dr. Padraic Regan for providing me with direction for this research
study.
And finally, I would like to show my appreciation to all the participants who took part in this
research study, their contributions and efforts are greatly appreciated.

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Table of Contents
Chapter One: Introduction .........................................................................................................1
1.1 Rationale for this Research Study....................................................................................1
1.2 Aim of the Research Study...............................................................................................2
1.3 Outline of the Research Study..........................................................................................3
Chapter Two: Literature Review ...............................................................................................4
2.1 Introduction......................................................................................................................5
2.2 The Health and Fitness Industry.......................................................................................6
2.3 Servitization .....................................................................................................................8
2.4 Servitization Implementation...........................................................................................9
2.5 Challenges with the Implementation of Servitization....................................................11
2.6 Servitization and Firm Performance ..............................................................................12
2.7 Servitization as a Business Model..................................................................................13
2.8 Management of Cross Selling ........................................................................................15
2.9 Customers Perceptions and Service Quality ..................................................................16
2.10 Conclusion....................................................................................................................18
Chapter Three: Methodology...................................................................................................19
3.1 Introduction....................................................................................................................19
3.2 Mixed-Methods..............................................................................................................20
3.2.1 Philosophy ...............................................................................................................21
3.2.2 Research Approach..................................................................................................22
3.2.3 Research Strategy ....................................................................................................23
3.2.4 Time Horizons.........................................................................................................24
3.3 Sampling and Selection..................................................................................................25
3.3.1 Structured Interviews...............................................................................................25
3.3.2 Online Survey..........................................................................................................25
3.4 Data Collection...............................................................................................................26

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3.4.2 Online Survey..........................................................................................................27
3.5 Data analysis ..................................................................................................................28
3.5.2 Online Survey..........................................................................................................28
3.6 Ethical Considerations....................................................................................................30
3.7 Conclusion......................................................................................................................30
Chapter Four: Findings ............................................................................................................31
4.1 Introduction....................................................................................................................31
4.2 Qualitative Findings.......................................................................................................31
4.2.1 Challenges with Servitization..................................................................................32
4.2.2 Business Models for Servitization...........................................................................34
4.2.3 Level of Servitization ..............................................................................................36
4.3 Quantitative Findings.....................................................................................................38
4.3.1 Importance-Performance Analysis ..........................................................................41
4.3.2 Firm Performance....................................................................................................43
4.3.3 Customer Importance ..............................................................................................44
4.4 Conclusion......................................................................................................................46
Chapter Five: Discussion .........................................................................................................47
5.1 Introduction....................................................................................................................47
5.2 Understanding the Findings ...........................................................................................47
5.2.1 Challenges with Servitization..................................................................................48
5.2.2 Business Models for Servitization...........................................................................49
5.2.3 Level of Servitization ..............................................................................................50
5.2.4 Firm Performance....................................................................................................52
5.2.5 Customer Importance ..............................................................................................54
5.3 Limitations .....................................................................................................................56

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5.4 Conclusion......................................................................................................................57
Chapter Six: Conclusion and Recommendations.....................................................................58
6.1 Conclusion......................................................................................................................58
6.2 Recommendations..........................................................................................................59
References................................................................................................................................60
Appendices...............................................................................................................................69
Appendix A- Research Information.....................................................................................69
Appendix B-Consent Form ..................................................................................................70
Appendix C-Structured Interview Questions .......................................................................71
Appendix D-Online Survey..................................................................................................73
Table of Tables
Table 1-Research Questions ......................................................................................................2
Table 2-Research Strategy.......................................................................................................23
Table 3-Importance Performance Analysis Matrix-Source: Matrilla & James (1977)............29
Table 4-Importance Variables..................................................................................................39
Table 5-Performance Variables ...............................................................................................40
Table 6-Importance Results.....................................................................................................44
Table 7-Recommendations ......................................................................................................59
Table of Figures
Figure 1-Research Onion (Saunders et al., 2012)....................................................................20
Figure 2-Importance Performance Matrix ...............................................................................41
Figure 3-Performance Results-Concentrate Here ....................................................................43

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Chapter One: Introduction
1.1 Rationale for this Research Study
The roots of modern Health and Fitness are deeply embedded in physical culture and were
initiated by health reforms that took place in the nineteenth century. However, the modern day
industry is looked upon as being a lucrative business venture that has expanded into a billion
dollar industry (Thompson, 2014). The global Health and Fitness industry is growing
exponentially and is encapsulating a number of additional services under the one category of
‘Health and Fitness’ (Tawse and Keogh, 1998). Since the 1970’s, the commercial fitness
industry has grown to incorporate services from sectors such as dietetics, cosmetics and beauty
which highlight the industries shift from health conscious consumers towards a more image
conscious consumer (Smith, 2001). This dramatic change within the Health and Fitness
industry over the past number of years has seen the emergence and adoption of servitization
within the sector. Servitization was introduced to satisfy the evolving needs of Health and
Fitness club members.
Servitization is the grouping of a service with a product and puts the service at the forefront of
a product offering. Servitization provides customers with a more customised solution and
support system (Baines et al., 2009). Implementing a service focused strategy, has been said
to, provide long-term competitive advantages such as increasing market share through repeat
custom, attracting new customers and increasing revenue from increased loyalty (Kastalli and
Van Looy, 2013) (Kohtamäki et al., 2013).However, a lack of research has been conducted in
the field of servitization within the Health and Fitness industry thus making it an interesting
topic to explore.
It also appears that Health and Fitness clubs are lacking knowledge on the importance of
making the worthwhile transformation to services and understanding how to capture and create
value through the provision of these services, especially in terms of business models. There is
currently no optimal business model which acts as a guide for Health and Fitness clubs
transitioning towards a service-oriented approach. However the academic literature does
highlight the need for it. Therefore, there is a clear need to identify how a club should
implement the use of servitization to maximise its potential and add value to both the offering
club and also the end users to increase the performance of their club. Consequently, this
research study will investigate the impact that the implementation of servitization has on the
performance of a Health and Fitness club in Ireland.

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1.2 Aim of the Research Study
The overall aim of this study is to understand how the implementation of servitization within
the Irish Health and Fitness industry impacts on firm performance. This will be done through
the discovery of findings that support or disprove the hypothesis which is- The implementation
of servitization within a Health and Fitness club will lead to increased firm performance.
To achieve the aim of this research study, a number of research questions will need to be
answered.
No. Research Questions
RQ.1 What challenges do Health and Fitness clubs face when providing additional
services?
RQ.2 What is the optimal business model (If any) that needs to be implemented when
adopting a servitization approach in the Health and Fitness Industry?
RQ.3 What level of servitization offers the best return for a Health and Fitness club?
RQ.4 Are Health and Fitness clubs maximising their performance through the
implementation of servitization?
RQ.5 Are Health and Fitness clubs accurately matching the service attributes they provide
with the expectations of their customers?
Table 1-Research Questions

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1.3 Outline of the Research Study
Chapter Two of this research study reviews the literature available that relates to the research
topic in question. The chapter will provide an overview of the Health and Fitness industry.
Additionally, the chapter looks at literature which pertains to the implementation, challenges,
business models, performance and importance of servitization.
Chapter Three outlines the methodology implemented for this research study. This study has
utilised the research onion to detail the methodological approach. This section will also discuss
the sample, data collection and data analysis techniques that were implemented for this research
study.
Chapter Four presents the findings of the research study which are a result of the collected
and analysed data. The various themes and trends that developed from the quantitative and
qualitative data collection methods will be presented and illustrated.
Chapter Five offers an interpretation of the findings. This chapter proffers reasoning behind
the findings, states their relevance to the study and puts forward practical implications. This
chapter also relates the findings to previously conducted empirical research.
Chapter Six will complete the research study by concluding with a summary of the overall
research study. The chapter puts forward five recommendations that will aim to guide health
and Fitness clubs going forwards in the servitization domain.

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Chapter Two: Literature Review
The following chapter will critically review all relevant literature that pertains to the provision
of additional services by Health and Fitness clubs. The literature review will give an overview
of the Health and Fitness industry. This will be followed by an outline of servitization and its
origins. The implementation of servitization and its impact on firm performance will be
analysed and discussed. Additionally, the challenges of servitization implementation will be
reviewed. As additional services are cross-sold within Health and Fitness clubs this topic has
been assessed and detailed. Finally, customer’s perceptions and expectations of service quality,
with relation to the industry, have been delineated.

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2.1 Introduction
Today’s market places have become highly competitive and are generally unsettled. During
times of economic downturn, such as the global recession of 2008, the value chain of goods
became less attractive as the demand for goods became increasingly motionless. Organisations
are now, progressively, more aware of the value that exists in offering services in conjunction
with their basic offering (Wise and Baumgartner, 1999) In reply to these relatively
unpredictable conditions, organisations have, more recently, focused on their customers and
utilised innovation, in such a way the product a customer receives is better fitted to their needs
(Johnson and Selnes, 2004). Many organisations have come under mounting pressure, due to
uncertain marketplaces, to augment products through the provision of services to satisfy their
current customer base (Baines et al., 2009). Firms are now placing increased levels of value on
the customers that they have, in terms of satisfaction levels, repeat purchases and increased
loyalty (Johnson and Selnes, 2004).
Overall, empirical research suggests that services offer a more constant income, increased
profit margins and necessitate less asset allocation than the provision of a standard good
(Davies, Brady and Hobday, 2007). This has led to an increased level of interest amongst
researchers and organisations, in coupling services with products (Baines et al., 2010). This
linking of services with products is referred to as servitization. Servitization is a means of
increasing worth by linking services with products (Vandermerwe and Rada, 1988).
Servitization is a way to create value-added capabilities. The capabilities to create this link is
distinctive when compared with competitors and aim to seek increased firm performance
(Baines and Lightfoot, 2013).
Servitization has been referred to as a strategic driver for competitive advantage (Frambach et
al., 1998). Servitization utilises service foundations to distinguish the basic product offerings
and therefore may allow for competitive opportunities to exist (Frambach et al., 1997).The
global Health and fitness industry has adopted the use of servitization to satisfy the expanding
needs of their growing consumer base. The industry has evolved from a purely health based
focus to incorporate the image conscious consumer and their lifestyle choices (Smith, 2001).
Servitization bundles additional services with basic membership packages in clubs. Cross-
selling management has been implemented within the industry to promote these services and
generate additional revenue streams (Li, Sun, & Montgomery 2011).

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2.2 The Health and Fitness Industry
Health and Fitness has always been a cornerstone of any society and has evolved greatly
throughout the years. However, the industry is now looked upon as being a lucrative business
venture that has expanded into a billion dollar industry (Thompson, 2014). The global Health
and Fitness industry is growing exponentially and is encapsulating a number of additional
services under the umbrella term of ‘Health and Fitness’ (Tawse and Keogh, 1998). Since the
1970’s, the commercial fitness industry has grown to include services from sectors such as
dietetics, cosmetics and beauty which highlight the industries shift from health towards image
concerns of its consumers(Smith, 2001).
With this consistent growth, there is now an increased demand for an increased level of service
quality to be provided within in the sector, to satisfy the needs of the consumer (Papadimitriou
and Karteroliotis, 2000). However, research shows that the management quality of services
within the Health and Fitness industry is lacking (Hurley, 2004). Services within the Health
and Fitness industry necessitate a significant level of physical interaction between the provider
and their customers (Chelladurai et al., 1987). Health and Fitness services have been
categorised as being complex and unique (Chang and Chelladurai, 2003).Therefore, the
literature states, that it is imperative for those providing Health and Fitness services have an
in-depth understanding of their customer(Chang and Chelladurai, 2003).
Today, Health and Fitness clubs offer a broad and varied host of additional services that include
fitness assessments, personal training, nutritional consultations, physiotherapy, child care, food
and drink facilities and beauty related services (Woolf, 2008). Research by Chelladurai et al.
(1987) defined the service dimensions of Health and Fitness clubs and also outlined the
importance of each dimension. The five uncovered dimensions were “professional services”,
“consumer services”, “peripheral services”, “facilities and equipment”, and “secondary
services’’. Facilities and equipment were ranked the highest by customers (Chelladurai et al.
1987) but were considered to be hygiene factors by the customers and also a part of the base
level offering provided by any health and Fitness industry (Herzberz, 1959; Baines and
Lightfoot 2013). The peripheral and consumer services such as personal training, beauty
treatments and supplement shops were ranked of high importance for customers.

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This research, to date, shows the shift in the industry from purely a health based focus to that
of a body image emphasis. This shift has brought about the incorporation of additional services
within the industry to augment the base product of basic membership. Basic membership
governs the use of a facility and its equipment (Smite, 2001). These additional services have
been implemented to satisfy customer’s needs and also to create additional revenue streams
within the industry for suppliers. However, as the literature highlights, there are issues with
customer relations (Hurley, 2004) and that there is a necessity for providers to understand the
needs of their customers (Lagrosen, 2001). This shows the need for more research to be
conducted in this area to close the gap between service providers and customers wants within
the industry.

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2.3 Servitization
Servitization is the term used to describe an organizational change that creates new sources of
revenue for a firm by combining the traditional product offered by a firm with a service
(Vandermerwe and Rada 1988). The term servitization was first introduced by Vandermerwe
and Rada (1988). They defined servitization as “the increased offering of fuller market
packages or ‘bundles’ of customer focussed combinations of goods, services, support, self-
service and knowledge in order to add value to core offerings” (Vandermerwe & Rada 1988).
Within literature, there are many varied definitions of servitization, however, the concept that
product-based services is central and common across the board (Baines et al., 2009).
Organisations have been combining services with products for a number of years, however, it
was not always to gain a competitive advantage and was viewed by many managers as a
necessity in conjunction with marketing strategies (Gebauer et al., 2006). Initially, the main
emphasis was on the product and the services were merely seen as being added on to the base
product. It was not seen as a core component and contributed little value to the customer
(Gebauer et al., 2006). The additional services were more so employed as a marketing
gimmick. Since its inception, the landscape of servitization has evolved significantly and now
puts a service at the forefront of a product offering (Gebauer et al., 2006). Customers are no
longer provided with just a tangible good, but with a more customised solution and support
system which provides the customer with a well-rounded good and their desired outcome
(Baines et al., 2009).
A significant proportion of the research on servitization has shown that a relationship exists
between servitization and firm performance (Lee et al., 2016). Research suggests that
servitization impacts on firm performance after the provision of services reaches a certain level
(Fang et al., 2008). Baines et al., (2009) states that there are several varying levels of
servitization. These levels can be placed on a ‘product-service continuum’ and range from
products with an additional service to advanced services with a tangible good. However, it has
been stated that servitization does not always lead to an increased level of firm performance
and can in fact adversely affect the performance of an organisation (Malleret, 2006). These
servitization discrepancies have stemmed from organisational issues such as the management
environment or cultural differences in adopting a service strategy (Malleret, 2006).

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2.4 Servitization Implementation
Literature outlines that there are three main motivating factors for organisations to adopt a
servitized approach. They are competitive motivations, demand-based motivations and
economic motivations (Raddats, 2016). Competitive motivations are present when an
organisation views their products as their primary resource and as their source of competitive
advantage. However, the services that surround the product play a pivotal role in the
differentiation strategy (Dachs et al., 2014). Demand-based motivations are grounded on
whether the customer needs to carry out operational activities themselves or not. If so, the
organization can supply what is known as an ‘advanced’ service around their product to satisfy
the needs of the customer (Baines and Lightfoot, 2014). However, advanced services are not
always warranted and organisations may also provide intermediate or base services to satisfy
customer demands (Baines and Lightfoot, 2014).Organisations who do not implement an
advanced level of servitization have been found to achieve high levels of competitive advantage
over those who implement advanced servitization (Baines and Lightfoot, 2014).
Research has shown that economic motivators are fundamental for organisations (Reinartz and
Ulaga, 2008). Reengineering the corporate focus of an organisation from products to services
is now generally accepted as being an economic success (Reinartz and Ulaga, 2008). This is
so, as services can offer a new sustainable source of revenue to the organisation who
implements servitization. Additionally, the implementation and use of servitization enables
firms to overcome stagnating and declining product markets (Eggert et al., 2011).
A common theme has emerged within the literature that pertains to the implementation of
servitization. It has become evident that organisations are offering additional services at three
distinct general levels (Baines and Lightfoot 2013). They are; base (Basic products/basic
equipment provision, additional equipment), intermediate (customer services, training and
maintenance), and advanced (customer support agreements, result based contracts).Gebauer et
al. (2008) states that the level of servitization offered by a firm is dependant of their core
competencies and is self-positioned by the firm on the product-service continuum. This
suggests that organisations who implement servitization, base their offerings on their
organisational strengths (Gebauer et al, 2008).

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The literature provides several frameworks for organisations to transform from a product
centred organisation to a service focused organisation. Oliva and Kallenberg (2003) proffer a
gradational outlook on the shift towards servitization whereby those providing the services
make the first proposal. This process involves recognising the need for additional services,
entering the service market, extending the service offering and finally taking over the customer
in terms of vertical integration (Oliva and Kallenberg, 2003). An alternative to this approach
has been put forward by Martinez et al (2010). This approach has been categorised as a more
responsive method as both the end user and the supplier move towards servitization collectively
(Martinez et al., 2010).
There is a significant body of research (Kastalli and Van Looy, 2013; Kohtamäki et al., 2013;
Suarez, Cusumano, and Kahl,2013) which generally agrees that transitioning towards a service
focused strategy can provide long-term competitive advantages for organisations. Furthermore,
Baines et al., (2008) established that firms who implement and utilise servitization look towards
always increasing their level of service surrounding a tangible good. However, a study by
Neely (2008) discovered that firms who have implemented a servitization strategy do not hold
a competitive advantage over those who focused solely on their base product offering. This
research found that they were in fact more likely to fail and experience bankruptcy. Therefore,
despite the majority of the empirical research to date suggesting that servitization does in fact
lead to competitive advantage and greater firm performance, there is still some conflicting
literature present. These contrasting views and perceptions on servitization bring to light the
discussion -to what extent does the implementation of servitization impact, if at all, on firm
performance?

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2.5 Challenges with the Implementation of Servitization
The literature highlights that the initial implementation of servitization may be accompanied
by many challenges in terms or organisational and cultural difficulties. These difficulties relate
mainly to the acceptance and adaptation of servitization by staff members (Slack, 2005). One
issue that may discourage an organisation from initially implementing a servitization approach
is the fear of the unknown. Services are inherently different than that of basic product offerings
(Slack, 2005). This difference has been found to deter organisations from differentiating into a
service domain due to unknowns such as competition and customers reactions (Olivia and
Kallenberg 2003). These relatively minute risks have been found to potentially outweigh the
benefit of revenues that are actually derived from the implementation of servitization and
therefore make the idea of transitioning towards a service led organisation redundant (Baines
et al., 2009).
However, if the decision is actually taken to adopt a service led strategy, considerations need
to be made in terms of the structure of the organisation and its accompanying processes (Olivia
and Kallenberg 2003). Selecting and implementing the correct servitization strategy has been
identified as a key organisational challenge when transitioning towards a service led approach
(Wise & Baumgartner, 1999). In addition, to these organisational concerns lie cultural
differences. These differences have been found to pose a substantial threat to the acceptance of
a service lead culture by current staff members. The fundamentals of service provision differ
greatly to that of product manufacturing or the provision of a basic product (Wise &
Baumgartner, 1999). Therefore, many organisations and their staff may be culturally stubborn
in their acceptance of a new service led approach (Mathieu, 2001). This is due to a lack of staff
training and education on their new roles and the new operating systems (Mathieu, 2001).
The service culture is unique and differs vastly from a traditional, product based, organisational
culture. Mathieu (2001) states that a corporate frame of mind is required to implement a service
led approach that prioritise the development of services whilst being aware of the more
traditional approaches to increasing firm performance. The literature does not hone in on any
definite challenges that are relative to a specific industry, no more so than that of the Health
and Fitness industry. Therefore, this research looks to investigate what challenges do Health
and Fitness clubs face when implementing providing and additional services?

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2.6 Servitization and Firm Performance
Firm performance is focused on of three aspects of performance in any organisation. They are
the financial, the market and the shareholders performance (Richard et al. 2009).Traditionally,
firms have fixated on one, or a blend, of three paradigms in their search for increased firm
performance. Firstly, firms can gain a competitive advantage from taking control of upstream
and downstream activities e.g. taking over their suppliers and buyers. Secondly, through
research and development and finally developing a market position that can benefit from
economies of scale (Wise and Baumgartner 1999). However, Porter and Ketels (2003) claim
that servitization offers organisations the chance to create long-term competitive advantage and
increase firm performance. Servitization allows customisation and significant differentiation
to occur and therefore frees organisations from competing purely on cost alone. Further
research has reinforced the concept that servitization does offer a firm greater differentiation
(Baines et al. 2009) and increases levels of customer satisfaction which has been shown to
increase the performance of a firm (Raja et al. 2013). Furthermore, literature on service
management has shown that firm performance can be increased through the implementation of
servitizaition but may not be immediately apparent or observable (Raja et al. 2013). This is due
to differing management methods used in the implementation and transition phase, from
products to services (Gronroos, 1990) and cultural differences in the acceptance of change
(Slack, 2005).
The literature suggests that the implementation of servitization leads to greater economic gain.
Servitization is utilised to increase the performance of a firm through the improved satisfaction
levels amongst their customers (Baines et al. 2009). However, empirical research has produced
findings which question the reliability of organisations efforts to increase customer satisfaction
and quality through approaches such as servitization (Anderson, Fornell & Lehmann, 1994).
Conversely, a meta-analysis produced by Caponet al (1990) which focused on strategy
variables such as additional services provided for customers, highlighted that 20 research
studies found a positive relationship between service quality and firm performance. From the
literature reviewed, it is apparent that very few studies have fixated solely on the connection
between the implementation of servitization and firm performance. Overall, the literature
suggests a positive link between servitization and increased firm performance. However, there
are some inconsistent views present within the literature on the effectiveness of servitization
on a firm’s performance. In general, the question can be asked, what impact does servitization
have on the performance of a Health and Fitness club?

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2.7 Servitization as a Business Model
The business model of an organisation can simply refer to the technique that an organisation
employs in setting their business strategy in motion (Chesbrough and Rosenbloom, 2002). A
business model has been defined in literature as the basis for an organisation to create and
capture value (Magretta, 2002). This added value can generate new streams of revenue and in
theory, increase the performance of a firm (Vandermerwe and Rada, 1988). A number of
different servitization business models can be identified in product services literature.
The literature identifies three varying ways in which a product-service system can be
incorporated into business models. They are the integration approach which is a blend of the
product and service, the product-service approach which puts the product at the forefront of
the offering and the service-product approach which is founded on the service itself (Weaver,
2002). Furthermore, Neely (2008) added to this work and put forward two further groupings
that mirror the integrated product and service offerings and adds value to the customers
experience. These are use-oriented forms of servitization. This is where the service provider
retains the ownership of the tangible product, such as Rolls Royce and their ‘power by the
hour’ service. Additionally, result-oriented product service systems, is where the product is
replaced in its entirety by a service e.g. a gym transitioning completely into a personal training
facility from a membership gym. (Neely, 2008)
A key driver behind the paradigm shift towards a servitization business model is to add
diversification to an organisations offerings. This enables organisations to compete on a
different level to cost alone. Furthermore, there are multiple opportunities to secure and obtain
longevity in the coupling of products and services (Vandermerwe and Rada, 1988). Neely
(2008) proposes the idea of designing a business model from the perspective of the customer.
Marketing literature emphasises the necessity for organisations to understand what is of value
to the end user and also what value is derived from the offered service for the customer as
opposed to looking at the potential value offered from the service supplier’s viewpoint (Vargo
and Lusch, 2004).

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Neely (2008) makes four suggestions when designing a servitized business model. Firstly, the
organisation must understand what is of value to the customer. Secondly, they must possess
the capability to deliver a service as opposed to a product. Thirdly, a service culture must be
created. Finally, the previous three points must be harmonised together and create a dynamic
synergy to implement servitization. Through the implementation of a custom, servitized
business model, it is believed that it will deliver higher margins and that the combination of
products and services will offer a distinctly higher level of diversification which in turn will
deliver a potentially high level of competitive advantage (Gebauer et al, 2005).
Based on the variation present within the literature, in relation to servitized business modelling,
this research will investigate the current business models implemented by Irish Health and
Fitness clubs. The research will look to answer how Health and Fitness clubs facilitate the
provision of additional services within their business models with a view to increasing firm
performance.

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2.8 Management of Cross Selling
Cross-selling is the term given to the selling of an additional product or service in conjunction
with, or to compliment the base product offered to an already existing customer (Li, Sun, &
Montgomery 2011). The practice of cross-selling has been classed as a strategic priority for
numerous industries such as the Banking sector, Medical Services, Communications and Retail
(Li, Sun, & Montgomery 2011). Cross-selling holds a host of potential benefits for both
vendors and customers alike (Schmitz, You-Cheong, & Lilien, 2014). A study by Coyles and
Gokey (2002) discovered that an organisation who successfully implements cross-selling
management hold the potential to increase their revenue by as much as 100 % (Coyles and
Gokey, 2002). By increasing the amount of money current customers spend allows
organisations to grow stronger customer networks which leads to increased profitability
(Kamakura, 2008). However, despite the literature highlighting the numerous benefits of cross-
selling, it has been reported that almost one in three cross-selling strategies fail (DeGabrielle
2007). A study by Malms (2012) states that that 58% of failures in cross-selling are related to
the salespeople involved and that 26% of failures are directly related to sales managers.
The literature suggests that there are many benefits to cross-selling additional services to an
existing customer such as developing and strengthening relationships with customers and
increasing profits (Kamakura, 2008). Conversely, a significant number of cross-selling
activities are deemed a failure (DeGabrielle, 2007). As additional services within Health and
Fitness clubs are cross-sold to existing customers in addition to their basic membership
packages, there is a need to investigate the distribution channels employed by clubs to sell and
deliver these additional services.

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2.9 Customers Perceptions and Service Quality
Theories that surround the quality of services are fundamentally based on the quality of the
product or service itself and the level of satisfaction that is felt by the end user (Brady & Cronin,
2011).Early literature states that high levels of quality are achieved when the actual
performance of a service meets or surpasses that of the perceived performance (Parasuraman,
Zeithaml, and Berry 1985). It is essentially a comparison of the perceived performance pitted
against the actual performance (Brady & Cronin, 2001). In literature this is known as the
disconfirmation paradigm.
An outlook on service quality was put forward by Parasuraman, Zeithaml, and Berry
(1985).Their research has provided the basis and foundation for service-quality research
through the SERVQUAL model. This model views the quality of the received service as the
gap between what service level the customers expect and level of service received by the
customer. The model focuses on the perceptions of five service dimensions which are
reliability, responsiveness, empathy, assurances, and tangibles. More recent research into the
domain of service quality has added to the work of Parasuraman, Zeithaml, and Berry (1985).
These advancements of the SERVQUAL model look at customers perceptions in terms of what
services ‘should and will do’ (Carman, 2000).
Rust and Oliver (1994) view service quality from three dimensions. They are the service
product itself, the actual delivery of the service and finally the environment in which the service
is carried out. Additionally, Dabholkar, Thorpe, and Rentz (1996) built upon Parasuraman,
Zeithaml, and Berry's (1985) approach to SERVQUAL by creating a multi-level model. The
model focuses on three levels that are concerned with the customers overall perceptions of
service quality such as interactions, primary dimensions such as physical environment, and sub
dimensions such as outcome quality. In sum, literature to date on service quality has mainly
stemmed from the SERVQUAL model proffered by Parasuraman, Zeithaml, and Berry (1985)
and focuses on the gap between what customers expect and what customers receive.

17
Whilst the majority of research on service-quality places emphases on the overall quality,
researchers have also stated that there is a difference with being overall satisfied with a service
and being satisfied with the attributes of a service (Abdul-Muhmin, 2010). The overall
satisfaction level contributes to the end users evaluation of a service. However, the level of
attribute satisfaction is related to specific aspects of a service (Abdul-Muhmin, 2010). Attribute
satisfaction related to attributes of a service are a subjective opinion which stems from
observations of the attribute in performance (Oliver, 1993). Therefore, customers may be
satisfied overall with the service provided but dissatisfied with particular aspects of that
service. As a result, services may to be performing well, however, they may not be reaching
their potential (Mittal, Ross, and Baldasare 1998; Spreng et al. 1996).
As the Health and fitness industry continues to grow and expand, competition within the
industry has increased greatly. Under such competition within the industry, Health and Fitness
Clubs understand that there is a need for management to construct, implement and maintain a
successful operating system to ensure a high level of service quality (Lam & Jensen 2005).
Literature highlights the importance of service quality within this industry as a major
component for retaining members and to ensure future profitability of an organisation. The
implementation of servitization can act as a platform to meet the growing demands of
customers (Vandermerwe and Rada, 1988). However, it is the quality of these additional
services that will affect the purchase intentions and levels of customer satisfaction (Zhang&
Jensen, 2005). If a customer is satisfied with an additional service, they are increasingly likely
to pay a premium price, try other additional services and increase usage frequency of these
services (Zhang& Jensen, 2005). This poses the question of, how accurately are Health and
Fitness clubs meeting the expectations of their customers in terms of quality relating to
additional services on offer.

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2.10 Conclusion
Overall, based on the literature reviewed, it seems likely that the implementation of
servitization within an organization may positively impact on firm performance. This seems
especially true within the Health and Fitness industry as customers, in addition, to health
benefits are now seeking additional services related to their image such as beauty and leisure.
However, this evidence is anecdotal (Wise and Baumgartner, 1999). Various studies (Guajardo
et al., 2011; Kim et al., 2010) have highlighted the benefits of implementing servitization, such
as increased revenue generated and customer loyalty. Neely (2008) discovered that the decision
for an organization to implement servitization can impact positively on firm performance.
Additionally, certain levels of servitization implementation have been found to negatively
affect profitability. However, the impact on performance in conjunction with servitization
seems to be highly correlated with the industry in which it is applied (Fang et al., 2008). Based
on the literature reviewed, a hypothesis has been put forward to be tested by this research study.
Hypothesis - The implementation of servitization within a Health and Fitness club will lead to
increased firm performance.

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Chapter Three: Methodology
3.1 Introduction
This chapter will set out the methodological path that has been applied to this research study
to discover how the implementation of servitization impacts on Irish Health and Fitness clubs.
This chapter will outline the research questions, the research design, the sampling and
selection, data collection and also the data analysis techniques employed by this study. This
chapter will also outline any ethical considerations that needed to be accounted for throughout
the course of this study.

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3.2 Mixed-Methods
Naslund (2002) states that "People view the world differently". This has repercussions for how
researchers approach their work. This is so, as research can be viewed differently by different
individuals. Conversely, as people view the world differently, various approaches may be taken
when gathering, analysing and interpreting information. The use of different angles or the use
of both positivist and interpretivist approach is referred to as ‘triangulation’ and provides a
middle ground between the two distinct approaches (Mangan et al., 2004). A broad variation
of methodologies exists. These methodologies tend to lean towards either paradigm, however,
are not exclusively associated to a specific paradigm (Mangan et al., 2004). This is evident
within this study as it mainly adopts the pragmatic philosophy.
This method was necessary to adopt when answering the different research questions asked of
this study. For the questions to be answered, information from varying samples needed to be
gathered. Data that pertained to customer wants and expectations needed to be obtained from
surveying the users of Irish Health and Fitness clubs. Additionally, the interviewing of Health
and Fitness club managers was required to understand how the clubs viewed servitization and
its ability to add value to their customers. Gathering of information through a triangulation
approach enables gaps to be identified. These gaps highlight the impact of servitization on the
performance of a club. The methodology will be further detailed through the use of the research
onion (Saunders et al., 2012).
Figure 1-Research Onion (Saunders et al., 2012)

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3.2.1 Philosophy
This research study mainly reflects the pragmatism approach as the researcher agrees with the
theory put forward by Guba and Lincoln (1994).This theory claims that epistemology, ontology
and axiology are seen to be superior and primary to the actual method of a research study and
enables the research questions to guide the study. Additionally, pragmatism views the most
important aspect of any research philosophy to be the research question itself (Saunders et al.,
2012). “Pragmatists focus on the research question and allow it to inform the procedures,
methods and techniques of the research that best meet their needs and purposes.” (Creswell,
2009 p11). The pragmatist approach enables the researcher to focus on the research question
and allows it to inform the procedures, methods and techniques of the research that best meet
their needs and purposes of the researcher and the study (Creswell, 2009). This philosophy
recognises that one method can potentially be superior compared to another when answering a
particular question.
Pragmatism is frequently used when the researcher believes that choosing between the
positivist and the interpretivism philosophies seems unrealistic (Saunders et al., 2012). The
research questions put forward by this study adopts attributes of both the positivist and
interpretivism philosophies and therefore it is deemed to be perfectly reasonable to use a
pragmatism philosophy in answering the research questions (Saunders et al., 2012).
Furthermore, this philosophy has been adopted as a mixed method is being utilised and both
qualitative and quantitative techniques are being implemented concurrently. Pragmatism is
attractive to the researcher as it permits the researcher to avoid what are considered to be
meaningless debates about theories such as reality and legitimacy (Tashakkor & Teddlie,
1998).

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3.2.2 Research Approach
There are two approaches that are central to business research. They are the deductive and
inductive approach. The deductive approach is concerned with the creation of a hypothesis and
the designing of a research strategy to test this hypothesis. However, the inductive approach
focuses on data collection and the development of a theory based on the analysis. Empirical
literature available on research methods tends to portray a strict division between the deductive
and inductive approached to research. However, it is deemed to be perfectly acceptable and
often very advantageous to combine both approaches within the one research study (Saunders
et al., 2012).
The topic of servitization is a long established and relatively well researched topic. Therefore,
it is applicable to proffer a hypothesis and implement the deductive approach when analysing
this portion of the research study (Saunders et al., 2012). However, the idea of servitization
within the Health and Fitness industry is relatively new and there is scant literature available
on the topic itself. As a result of this inadequate literature it is deemed appropriate to implement
the inductive approach (Saunders et al., 2012).Therefore this research study has implemented
a mixed methods approach and combined the use of both deductive and inductive approaches.

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3.2.3 Research Strategy
The survey strategy has been chosen as it enables the researcher to collect a significant amount
of information from a sizable population in an economical fashion through an online
questionnaire. However, the survey strategy is not solely confined to the distribution of a
questionnaire and encompasses a host of data collection techniques such as a structured
interview. Structured interviews were used to investigate the implementation of servitization
within Irish Health and Fitness clubs. The structured interviews were held with the General
Managers of various clubs located around the country, in which all interviewees were asked
the exact same standardised questions.
The information gathered from the managers aided the development of the questionnaire. A
questionnaire is utilised to gather information on customer perceptions of the additional
services on offer from Irish Health and Fitness clubs. By nature, a questionnaire is highly
comparable and relatively easy to understand (Saunders et al., 2012). The survey strategy
enables the researcher to gather quantitative data. This data can then be analysed using
descriptive and inferential statistics. Additionally, this data can suggest possible reasons for
particular relationships between variables and to produce models of these relationships. The
findings from both the questionnaire and the interviews were analysed by statistical and content
analysis and an Importance Performance Analysis (IPA) with the results compared and
contrasted to highlight trends or existing gaps.
Strategy Aim Sample Question Style Analysis Method
1.Qualitative
structured
interviews
To ascertain why and how
Health and Fitness clubs
implement servitization
from the perspective of
Health and Fitness clubs
managers.
3 General Managers
from a Health and
Fitness club at a
base, intermediate
and advanced level
of servitization.
Structured
interview with
open style
questions.
Content analysis.
2.Quantitative
questionnaire
To quantify the importance
and performance of
servitization by Health and
Fitness clubs from the
perspective of the
customer.
150 Health and
Fitness clubs
members who have
been a member of a
club for 1 year or
more.
Closed rating
scale questions
(Likert scale).
SPSS, IPA Matrix.
Table 2-Research Strategy

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The combination of questionnaire and structured interviews is implemented by this study and
is referred to in literature as the mixed methods strategy. Curran and Blackburn (2001) state
that the popularity of this strategy has increased with business research studies, in which a
researcher may utilise both quantitative and qualitative techniques in tandem. Tashakkori and
Teddlie (2003) claim that the multiple methods strategy is advantageous and may provide
improved opportunities for the researcher to answer the research questions. Literature
associates one major advantage with the multiple methods strategy and it is that it can be used
for a different purpose in the study. This study is in line with Bryman’s (2006) findings that
the quantitative side of the research will be comprised of a questionnaire within a cross-
sectional design and on the qualitative side, a-structured interview within a cross-sectional
design will be utilised.
3.2.4 Time Horizons
Due to the time constraints of the academic course, the research study is cross sectional. This
style of research is well suited to that of the survey strategy (Saunders et al., 2012). Therefore,
this research study will aim to measure the impact and perceptions of servitization at a
particular time and not over a long period of time. Additionally, as mentioned in the previous
section on research strategies, when implementing a mixed methods approach a cross sectional
study is suggested (Saunders et al., 2012).

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3.3 Sampling and Selection
The theories that underpin the specific sampling approach vary greatly, and are highly
associated with the objectives and questions that are at the forefront of the research (Saunders
et al., 2012). The sample of participants was selected using the method of purposive sampling.
Purposive sampling enables the researcher to utilise their judgement skills and select a sample
that will best facilitate the research question to be answered (Saunders et al., 2012).
3.3.1 Structured Interviews
For this research, individuals who are experienced managers of a Health and Fitness club were
selected as they can provide a knowledgeable and experienced insight into the level of
servitization implementation in Irish Health and Fitness clubs. Additionally, General Managers
were sought after to provide an in depth insight into various functions of their organisations
that relate to additional services. This method of sampling is strategic in its approach and
intends to establish a strong link between the research questions and the sample (Bryman,
2004). The inclusion criterion for the structured interview was based on managerial hierarchy.
To gain a broad overview on the level of servitization provided, managers from clubs located
across the country of Ireland were contacted and interviewed.
3.3.2 Online Survey
The criteria for inclusion within the survey sample was based on participants being a member
of an Irish Health and Fitness club for one year or more within the past year. The researcher
chose to survey these individuals as they would have had experiences within a Health and
Fitness club. Furthermore, their knowledge of the additional services provided by their clubs
would be current. The selected sample were required to be over the age of 18 to avoid further
ethical considerations.

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3.4 Data Collection
The structured interview approach was selected to gather information from Managers within
Irish Health and Fitness clubs on the topic of servitization. Structured interviews enabled the
Managers to give clear and concise answers in a timely fashion. Additionally, a structured
interview provides a strong foundation for comparison and similarities to form. Kumar (2005)
state that a structured interview is the most suitable approach for studying complex phenomena.
This is so as the interviewer has the opportunity to brief the interviewee beforehand and explain
any complex issues that may arise during the course of the interview (Kumar, 2005). A total of
nine interview questions were constructed and compiled. These questions were formulated on
the basis of both primary and secondary data. Once again, information from previously
conducted interviews, academic literature and the input of industry professionals contributed
to the formulation of the question set.
The structured interviews were recorded using a Samsung recording application and were
transcribed verbatim. In total, three structured interviews were conducted with the General
Managers of three Irish Health and Fitness clubs. One of the interview participants was an
acquaintance of the researcher and the remaining two interviewees were contacted through an
arbiter of the researcher. This is in accordance with Buchanan et al. (1988:56) statement that
‘we have been most successful where we have a friend, relative or student working in the
organisation’. The participants were contacted prior to the interviews taking place. This initial
communication briefed the participants on the types of questions they would be asked.
Additionally, participants were also briefed on servitization jargon that may be employed
throughout the course of the interview. All interviews were conducted within the General
Mangers respective clubs. A trial interview was conducted prior to the beginning of the actual
research. This trial run enabled the researcher to gather feedback and refine the interview
process and rectify any errors that may have appeared. The data retrieved from this test
interview was not incorporated in the final analysis.

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3.4.2 Online Survey
The online survey was developed to gain an insight into the perceptions customers currently
hold towards additional services on offer in Irish Health and Fitness clubs. Satisfaction
variables were identified through secondary data sources such as published academic literature
on service quality and previously administered questionnaires on service quality within the
Health and Fitness Industry. Also, as the structured interviews were conducted prior to the
development and administration of the survey, information gathered through the interviews
helped inform the survey. The survey was developed online using the online platform Google
Forms (Appendix D).
A series of Health and Fitness, service-specific and standardised variables were developed and
incorporated into the questionnaire instrument based on the research mentioned in the above
paragraph. The questions sought after information on respondents’ demographics and
perceptions of how services should be administered, priced and delivered. These Importance-
Performance variables were measured on a five point Likert scale in which respondents were
asked how strongly they agree or disagree with a statement relating to additional services (1 =
Strongly disagree to 5 = Strongly agree). Additionally, this survey aimed to gather information
on the current level of additional services applied within Health and Fitness Clubs. To do this
SERVQUAL, proposed by Parasuraman et al. (1988) was utilised and asked questions to cover
the five SERVQUAL dimensions. The dimensions are tangibles, responsiveness, reliability,
assurance and empathy.
A first draft of the questionnaire was developed and distributed amongst a small group (10
people) of Health and Fitness Club members. This was to test for response time and also to test
the functionality of the questionnaire regarding the Importance Performance Analysis (IPA).
As a result of respondent feedback the first draft of the questionnaire was refined. Furthermore,
based on the respondent’s feedback, additional IPA variables were incorporated to give a more
in depth look at the samples perceptions. This refined questionnaire was distributed
electronically via the internet to acquaintances of the researcher, who were employed within
the Health and Fitness industry. Fifteen acquaintances, gathered ten respondents each which
amounted to a total sample size of 150 participants. The administration of a questionnaire in
conjunction with email, offered greater reliability as the vast majority of users would be the
only person with access to their email and therefore be far more likely to respond to their own
mail (Witmer et al. 1999).

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3.5 Data analysis
As previously mentioned, the structured interviews were transcribed verbatim. Following
transcription of the data, content analysis was used to analyse any consistent messages that
were recurrent throughout the interviews. Content analysis is a method of analysing words that
are contained within a document (Saunders et al., 2012). The content analysis enabled the
information to be easily coded. Once the data was coded, the researcher was then able to
analyse the data and further interpret it. Transcribing the structured interviews allowed the
researcher to gain a greater and deeper understanding of the gathered information. Codes were
assigned to keywords and from this, keywords could be categorised. This is seen to be a
fundamental and essential part of qualitative research (Saunders et al., 2012). The
categorisation of the data enabled its organisation into sub themes as a result of the coding
process. This allowed the analysis to progress and any recurrent themes were highlighted and
addressed. The last stage in the data analysis process was concerned with the validity of the
analysed data. The codes were meticulously rechecked through proofreading to highlight any
discrepancies in the process (Saunders et al., 2012).
3.5.2 Online Survey
Information gathered from the online survey was initially analysed through applications that
accompany Google Forms. From here the information was transferred to an EXCEL
spreadsheet. For this study, an IPA matrix was used to graph various attributes of additional
services that are currently provided by Health and Fitness clubs. The respondents of the
questionnaire were asked how important a component of a service was e.g. cost and then the
respondent was also asked to rate the performance of an attribute e.g. is the cost reasonable?
The results from this survey were calculated in terms of the mean importance of an attribute
and also the performance of an attribute. This information was then converted into a matrix
utilising the statistical analysis programme called SPSS. The data inputted into SPSS was then
plotted on the importance–performance grid. The data was plotted according to their relation
to each of the following four quadrants -keep up the good work, concentrate effort here, low
priority and possible overkill.

29
Importance–performance analysis (IPA) is an analytical tool which implements a two-
dimensional importance–performance grid which was created by Martilla and James (1977).
Standards of importance and performance of various characteristics are plotted on a matrix
across four quadrants (Feng et al., 2014). The various service characteristics that are shown
within these quadrants can aid managers to identify areas with both effective and also negative
performance and thus enable managers to prioritize areas of service quality that need attention
(Shieh & Wu, 2009). The use of IPA has been adopted across a host of varying industries such
as the Tourism Industry to the Transport Industry (Feng et al., 2014). The rationality behind
the IPA is based on highlighting the current position of additional services attributes and
identifying which of these service attribute add the most value to both the customer and offering
organisation (Yildiz,2011). Literature has categorised IPA as a simple but incredibly useful
technique that examines the difference between importance and actual performance of the
services on offer by an organisation (Abalo et al., 2007). Performance relates to the perceptions
that a customer possesses about how the service is actually delivered by an organisation.
However, importance is an expression of the relative value that a customer associated to the
service that is being provided by the organisation (Yildiz, 2011).
Table 3-Importance Performance Analysis Matrix-Source: Matrilla & James (1977)

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3.6 Ethical Considerations
Ethics is a philosophy that concerns itself with the actions of humans as its subject matter
(Finnis, 1983). Ethical considerations must be taken into account when interacting with
individuals and gathering data that may have an impact on these individuals (Saunders et al.,
2012). A number of ethical considerations were accounted for throughout the course of the
study.
The following ethical guidelines were put into place for the research period:
1. All participants were sent an informational overview of the research study (Appendix
A)
2. The information provided by survey respondents and interviewees was kept anonymous
throughout the course of the study and a consent form was signed (Appendix B)
3. The data collected as part of the research was classed as confidential throughout the
course of the study.
4. Both questionnaire respondents and interviewees were made aware that all information
was kept anonymous.
5. Permission was always obtained to gather information from various sources throughout
the research.
3.7 Conclusion
This chapter detailed the methodology that has been undertaken for this research study. The
chapter outlined the research design, the sampling and selection procedures, the data collection
and analysis and also discussed the ethical considerations that accompanied this study.

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Chapter Four: Findings
4.1 Introduction
This chapter presents the main findings from this research study. The findings will be presented
under two headings-Qualitative and Quantitative. Firstly, the key themes that emerged from
the content analysis of the structured interviews will be put forward followed by the findings
of the online survey. The results of the online survey have been illustrated through the use of
an IPA matrix.
4.2 Qualitative Findings
Three General Managers from different Health and Fitness clubs were interviewed to gather
information on how the implementation of servitization affects the performance of their
organisation. The three managers come from various Health and Fitness clubs that employ
various business models and utilise servitization in different ways. All managers have worked
within their clubs for ten years or longer. Manager A employs a basic level of servitization,
Manager B implements an intermediate level of servitization and Manager C applies an
advanced level of servitization. All of the managers were asked the same structured but open-
ended questions during the interview. The findings from these interviews have been used to
answer the qualitative research questions.

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4.2.1 Challenges with Servitization
The first research question asked of this study aims to identify what issues are faced by Health
and Fitness clubs when they began to provide services in addition to their core offering of basic
membership. The interview questions asked of the managers were to describe their servitization
journey and what difficulties did their organisations have to overcome when implementing
servitization.
RQ.1-What challenges do Health and Fitness clubs face when providing additional services?
All three managers expressed issues that were of concern when their organisations began to
offer additional services. The common theme that was prevalent throughout was, that of
organisational culture within which unacceptance of change was dominant.
Manager A ‘When we first opened up, we provided very few additional services, if any actually.
It was just a membership to the club, with a no frills approach. But as the customers’ needs
changed over time, as did we, we began to provide customers with more options within the gym
such as nutrition advice, health products and tailored programmes. This meant that the staff
had additional duties. A lot of the staff were set in their ways and did not take to the new way
of doing things’. This shows that the staff within this organisation were reluctant to change
their ways and adopt to the service approach.
Manager B ‘Initially, our staff didn’t understand the benefits to the organisation in providing
additional services. They felt that it was taking away from the fitness aspect of the organisation.
As a result it was tough to promote the services that we brought in. This is consistent with the
sentiments of Manager A. Manager B further stated that ‘To increase sale revenues, we
adopted a more sales focused culture and introduced a soft up-selling approach and began to
cross sell services such as meal plans with discounts from the gym’s café. The major challenge
was that our staff were reluctant to up-sell the new service. We were using fitness experts as
sales people that was our downfall’. Both the staff under Manager A and B were slow to adapt
to the new service approach as their roles had radically changed.

33
Manager C also expressed issues about organisational culture and how they were holding back
aspects of additional services. Manager C ‘Our organisation has always provided additional
services. We offer a service where everything is at the touch of a button, such as minding your
children, telling you how to eat and even doing your hair! But I suppose the main issue that we
have had is creating harmony across all services. Getting the lads on the gym floor to promote
services like the beauty spa was tough, they just didn’t see the point of it’ Once again the theme
of a stubborn organisational culture is present which has led to an initial failure in adapting to
a service led approach.
The main challenges that are apparent when implementing servitization within a Health and
Fitness club are related to the culture within the organisation. Members of staff were found to
be reluctant and slow to adapt to a service approach. This can initially have a negative impact
on the performance of the club. Communication issues were also prevalent with staff members
not understanding the organisational benefits of promoting other sectors or services on offer
within the club. Therefore, a fear of the unknown was a challenge which deterred staff members
from embracing servitization. Finally, the marketing and advertising of additional services was
found to be an issue. Clubs were unaware as how to best promote the new services on offer and
this lead to the services being unutilised by customers as a result of using incorrect distribution
channels such as inexperienced sales persons (Fitness team members).

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4.2.2 Business Models for Servitization
The second research question investigated, aimed to understand the vital components of a
servitized business model for Health and Fitness clubs. The questions asked of the managers
were-what type of business model is implemented in their organisation and how did their
chosen model impact on the organisations competitive advantage and firm performance. The
three managers all stated that their organisations utilise varying business models which has led
to diverse foundations of competitive advantage.
RQ.2-What is the optimal business model (If any) that needs to be implemented when adopting
a servitization approach in the Health and Fitness Industry?
Manager A specified that their organisations business model focused on low cost.’ The
customers are attracted by the low cost of a basic membership’ However, it was only in the
last number of years this organisation began to generate revenue streams from things other than
membership sales, such as the hair and beauty salons, in-house nutritionists and the cafés. The
low cost business model has been used to initially ‘capture’ the customers but retain them
through the additional services provided. ‘We used to have a very high membership turnover
rate, but now we have found that the customers are increasingly engaging with the additional
services and becoming loyal to these low cost services. Our membership retention percentage
has gone from 60% per year to 83% per year since bringing in services to the gym. People are
spending an increased amount of time here as well!’ This highlights the significant importance
that servitization can play in the retention of existing customers and shows how it’s possible
for a Health and Fitness club to gain competitive advantage from service provision through
increased level of customer loyalty despite the low cost.
Manager B implements a similar model to that of Manager A. However, it is not low cost and
the model was more consciously developed. Manager B ‘Our membership rates are priced
competitively on the market, this attracts the customers to join, as the club is seen to be towards
the higher end of things but still affordable’ However, despite the membership price being
affordable, the additional services that surround the core product are premium priced.’ The
services we provide customers with are top quality and priced accordingly. We have leading
Personal Trainers, an award winning Health Cafe and top Beauty Treatments. The majority of
customers who avail of the services are repeat members, which, I believe, speaks volumes of
the services’. The model implemented by Manger B is called as the add-on model. Revenue is
derived from premium priced services and competitive advantage is obtained through the

35
provision of specific quality services which attracts and retains customers whilst generating a
consistent revenue stream.
Manager C stated that their organisation is placed on the top end of the product-service
continuum and offers their customers an advanced level of servitization. Manager C stated that
their organisation operates on a ‘Premium Business Model’. This model offers customers a
high-end base product which is complimented by high end services. ‘What we deliver to our
members is the full package, essentially. The gym is state of the art and we provide a host of
extensive services that accompany basic use of the gym. Membership here is a lifestyle in that
we tailor our offerings to the needs of our members. We cater for everyone in the family by
providing services such as childcare, clothing shops, social events and even a laundrette in
addition to the use of our gym facilities. We differentiate ourselves from other clubs because
we provide so many services at an exceptionally high standard. We add value to the customer
by providing them with an all-round experience that expands way beyond just that of Health
and Fitness, which is delivered through our experienced staff and modern infrastructure.
Although, the club is seen as being fairly exclusive and is targeted toward a niche market so
it’s not for everyone!’ For this Club, competitive advantage is a derivative of its capabilities
and its resources. They offer a vast number of services at an extremely high quality through
their competent staff and use of modern equipment and technologies. However, the premium
business model implemented here is matched by a premium price. This business model is used
to target a specific niche market such as more affluent individuals.
The finding suggests that there is no one business model that is optimal for servitization in
Health and Fitness clubs. Rather, there are a number of models that are adaptable and applicable
to improving firm performance in relation to clubs such as the ‘low-cost model’, ‘the add-on
model’ and ‘the premium model’. However, there were themes that were consistent across all
of the used models. Despite all three managers implementing and using contrasting business
models, a dominant theme, common to all models is that emphasis is put on the provision of a
high quality service. Additionally, the finding highlights how all of the managers have used
their clubs core competencies to develop a competitive base.

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4.2.3 Level of Servitization
The third research question focused on the various levels of servitization that could be
implemented within a Health and Fitness club and the return that each level yields. The three
levels of servitization put forward by the literature are: basic, intermediate and advanced. The
three managers were asked about the services that are available within their club, what level of
servitization they believe that they are offering and also what how servitization implementation
has impacted on the performance of their organisation.
RQ.3-What level of servitization offers the best return for a Health and Fitness club?
Manager A explained that to keep in line with their low cost business model that they also
implemented a low cost level or basic level of servitization. This implementation of
servitization was a reaction to the changing marketplace and to keep in line with competitors
offerings. ‘As previously mentioned, we integrated basic additional services into our business
model to answer the call of our customers and to compete with other clubs. It has been proven
to work well as a retention strategy for customers but 85 % of our revenue still comes from the
sales of basic membership.’ Manager A utilises servitization at a basic level as a marketing
mechanism to attract and retain customers but it is not a key source of revenue within the club.
Conversely, Manager C, who implements an advanced level of servitization and has stated that
the additional services provided by their club is one of the leading sources of revenue. ‘We are
currently at maximum capacity in terms of members, therefore we have to look to alternative
revenue streams to increase performance and income. There is now a 50/50 split in revenue
streams between the membership sales per year and the revenue taken in by the additional
services. This is due to offering a wide range of services that are adaptable to everyone and by
putting the services at the forefront of our value proposition’. By putting services at the core
of the club, Manager C has used servitization to increase their firm performance through
offering a wide range of services for everyone in the club. The services provided are broad and
of a very high standard, placing it at the top of the product-service continuum.

37
Finally, Manager B offers an intermediate level of servitization. This lies in-between the basic
and advanced levels. Manager B states that they do not offer as wide a range of services as
some competitors. However, the services that are on offer are of top quality and create loyalty
between the customers and the club and additionally contributes to 32% of total revenues. The
services offered by the club initially were by external third parties e.g. personal trainers and
nutrition consultants. However, Manager B saw the potential in integrating these services into
the business and acquired them. Whilst the club does not offer a full level of servitization, their
intermediate offering appropriates the benefits previously discussed by Managers A and C in
terms of customer loyalty. ‘What we have found through our own customer satisfaction surveys
is that the customers keep renewing their memberships because they want to keep using our
services such as personal training, the physiotherapist or the beauty spa. 75% of our long term
members are re-joining year after year because they want to continue to use the services that
we provide them with, as well as the gym and pool. We found that our customers loved our
specific services provided by our experienced team in a modern setting’
In sum, servitization has been found to positively impact on firm performance across all levels
of implementation and in a number of ways. Firstly, a basic level of servitization can retain
customers as they feel loyal to an organisation thus increasing firm performance through repeat
purchases of membership. Secondly, additional services sold to customers can act as a leading
source of revenue as the sale of these services can significantly increase the level of income
generated by a club. And finally, both of the previous findings can occur concurrently within a
club. Servitization can act as a sustainable source of revenue whilst generating loyalty between
the club and customer which results in increased firm performance due to increased revenue
streams generated as a result of the additional services. Therefore, an intermediate level of
servitization has been found to offer the best return for a club as it generates income through
the sale of the services but also retains customers through loyalty and repeat membership
purchases.

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4.3 Quantitative Findings
The next stage of the analysis will focus on the data collected from the online survey. The
online survey was used to collect data from frequent and established users of Health and Fitness
clubs. This data was specifically collected to answer two of the proposed five research
questions. The information gathered from this sample was aimed to answer the questions:
RQ.4-Are Health and Fitness clubs maximising their revenues through the implementation of
servitization?
RQ.5-Are Health and Fitness clubs accurately matching the services they offer to meet the
needs of their customers?
The scale items on the survey were used to asses’ members’ perceptions of the additional
services provided by their Health and Fitness club. Tables 3 and 4 outline the respondents’
perceptions on the importance of various attributes of additional services and also their
perceptions on the actual performance of these attributes. A paired-sample t test was utilised
to evaluate the difference in mean importance scores when compared to that of the mean
performance scores. Across the board, all importance scores were significantly higher than that
of the mean performance scores. This suggests that there are internal issues present within
Irish Health and Fitness clubs in terms of their ability to meet the demands of their customers
and that the clubs are underperforming in certain aspects of their additional services when
compared to their level of importance.

39
Variable Importance
Valid Missing Mean Standard Deviation
Cost 150 0 4.21875 0.97499
Information 150 0 4.085473 0.820602
Accessibility 150 0 4.242424 0.79248
Fit for purpose 150 0 4.15625 0.8076
Modern
equipment and
technology
150 0 2.212121 0.73983
Knowledge 150 0 4.151515 0.795346
Adaptability 150 0 4.21875 0.706394
Operating hours 150 0 4.424242 0.618922
Empathy 150 0 4.515152 0.66714
Table 4-Importance Variables

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Variable Performance
Valid Missing Mean Standard Deviation
Cost 150 0 2.424242 1.061553
Information 150 0 2.154545 0.753778
Accessibility 150 0 2.625 0.832796
Fit for purpose 150 0 2.69697 1.07485
Modern
equipment and
technology
150 0 1.272727 0.6742
Knowledge 150 0 2.515152 1.003781
Adaptability 150 0 1.09375 0.53033
Operating hours 150 0 1.09375 0.609272
Empathy 150 0 2.5625 1.075759
Table 5-Performance Variables

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4.3.1 Importance-Performance Analysis
Figure 2-Importance Performance Matrix

42
The following will break down each quadrant of the IPA Matrix and its relevance to Irish
Health and Fitness clubs under the suggestions of Martilla and James (1977).
1) Keep up the good work
The components of the additional services that fall into this quadrant are seen to be the
strengths of the services. Customers view these components as performing well and also to
be crucial to the overall service provided. One service attribute was plotted within this
category. It was the cost of the additional services on offer within Health and Fitness clubs
in Ireland.
2) Concentrate here
This quadrant represents the components of a service that a club needs to improve and work
on to be classed as performing well. These components of an additional should be a top
priority for a Health and Fitness club. Seven of the service attributes tested were plotted in
this quadrant. They are the operating hours of services, the adaptability of services, the
accessibility of services, the knowledge and understanding of those delivering the service
and if the service is fit for purpose.
3) Low priority
Components that lie within this quadrant are deemed to be of low importance and do not
pose a threat to the performance of the Health and Fitness club. It is deemed to be
unnecessary for an organisation to focus on a component that falls into this category. The
use of modern equipment and technology in additional services was plotted within this
quadrant.
4) Possible overkill
This quadrant categorises components of an additional service that Health and Fitness clubs
are placing too much emphasis on. Health and Fitness clubs should relocate the resources
being applied to this quadrant to the ‘concentrate here’ quadrant. There were no service
attributes plotted within this quadrant.

43
4.3.2 Firm Performance
Research question No.4 looked at firm performance through servitization and if the return is
being maximised. Information gathered to answer this question was collected from the point
of view of the end user or club member using a questionnaire.
RQ.4-Are Health and Fitness clubs maximising their performance through the use of
servitization?
The results from the survey and the IPA matrix show that Health and Fitness clubs are not
currently maximising their performance through the implementation of servitization. The IPA
matrix illustrates how customers rank specific service attributes as being of high importance.
Concurrently, the respondents also ranked these attributes as currently underperforming with
respect to their expectations. The underperforming service attributes can be found in figure 3.
Figure 3-Performance Results-Concentrate Here
The IPA matrix demonstrates that these underperforming service attributes are of high
importance to the customer but are currently attaining low levels of performance in the eyes of
the customer. The matrix suggests that these service attributes are an area that Irish Health and
Fitness clubs need to concentrate on to improve the quality of additional services provided.
Through the finding of underperforming service attributes, clubs can become aware of current
issues. This finding shows that many service attributes are significantly underperforming.
Therefore, the sample clubs surveyed, can increase their service performance which, in turn,
will lead to greater firm performance.

44
4.3.3 Customer Importance
The fifth and final research question of this study was geared at understanding what customers
value in an additional services in relations to what clubs are offering. From understanding what
is important to the customer, clubs can deliver these service attributes.
RQ.5-Are Health and Fitness clubs accurately matching the service attributes they provide with
the expectations of their customers?
The IPA matrix has plotted seven service attributes as being of very high importance to the
customer. Customers of Irish Health and Fitness clubs have placed the following as being of
top importance (Table 6) to them when engaging with an additional service. However, similar
to the findings of RQ.4, the service attributes are seen to be significantly underperforming. The
IPA matrix shows that the Health and Fitness clubs are not matching the required service
attributes to the expectations or needs of their customers.
Service Attributes
No.1 Those delivering the service understand the needs of the
customer.
No.2 The operating times of the additional service should be
convenient.
No.3 The additional service should be easily accessible.
No.4 The additional service should be adaptable to the individual
customer.
No.5 The additional service should be fit for purpose.
No.6 Those delivering the service should be knowledgeable in their
domain.
No.7 Information on the additional services should be readily
available.
No.8 The cost of the additional service should be reasonable.
No.9 Additional services should utilise modern equipment and the
latest technologies.
Table 6-Importance Results

45
The Findings proposed by RQ.4 stated that the underperforming service attributes needed
attention to improve. However, this finding highlights specifically what needs to be improved.
By becoming aware of the importance customers place on these service attributes, clubs can
accurately match the services they provide and how they provide them to meet the needs, wants
and demands of their customers.

46
4.4 Conclusion
This chapter aimed to highlight the findings which developed as a result of both the structured
interviews and also the questionnaire. It has become clear from the findings of this study that
the implementation of servitization within Irish Health and Fitness clubs can have a positive
impact on firm performance. As the findings have shown, clubs can utilise servitization to
create loyalty between customers and clubs, to generate substantial revenue and also to
differentiate themselves from their competitors. However, the implementation of servitization
can be difficult, as a result of organisational and cultural barriers in adopting a service based
foundation. Additionally, it is unclear as to which business model of servitization provides the
optimal platform for a club to increase its performance. The varying models implemented by
the sample all positively impact on the overall performance of the firm. Moreover, all models
were flexible, adaptable and unique. The main commonalities within the business model
findings are the consistent emphasis on a quality service. However, the findings have
discovered that the optimal level of servitization is the intermediate level. This level provides
the best return in terms of customer retention and revenue generation. Finally, this chapter
found what customers value as important components of servitization and also highlighted the
current areas in which servitization of Irish Health and Fitness clubs are underperforming. A
gap between the importance and performance of several service attributes was discovered. The
unearthing of this gap can guide Health and Fitness clubs towards further increasing their level
of firm performance through the implementation of quality servitization.

47
Chapter Five: Discussion
5.1 Introduction
The following chapter will discuss and further analyse the findings of this research study. The
purpose of this research study is to assess the impact of servitization on the performance of
Irish Health and Fitness clubs. To analyse this topic, many objectives needed to be achieved.
They were to discover the challenges facing clubs when implementing servitization, to
determine an optimal business model for servitized clubs, to unearth the best level of
servitization to improve firm performance and finally, to understand if firms are maximising
their performance through servitization and matching their offerings to the needs of their
customers. This chapter will offer an explanation of the findings. This following will highlight
why the findings are pertinent to the research study and will also illustrate commonalities and
differences from this research in comparison with previously conducted research.
5.2 Understanding the Findings
As expected and as the hypothesis states, the implementation of servitization within a Health
and Fitness club was found to lead to increased firm performance. To satisfy this hypothesis,
five research questions were put forward and investigated. The following will discuss the
findings in relation to the research questions to better understand the results of the study.
Additionally, the findings of this research study will be related to previous studies to gain a
greater understanding of the results and their relation to the overall aim of the research.

48
5.2.1 Challenges with Servitization
RQ.1-What challenges do Health and Fitness clubs face when providing additional services?
Based on the common views of the managers who took part in the structured interviews, the
research identified one significant key challenge that Health and Fitness clubs faced when
implementing servitization. The main challenge faced was within organisational culture.
Employees of the clubs were reluctant to adapt to the new service approach. Therefore, this
prolonged the implementation stage of servitization. As a result, clubs could not reap the
rewards of servitization immediately. Furthermore, it was found that the newly implemented
services were disconnected from other sections of the clubs. There was a lack of
communication between the established tangibles and the newly established services e.g.
personal trainers were not cross-selling or cross-promoting services that would complement
their own, such as nutritional advice. This distance and lack of communication hindered the
benefits that accompany servitization such as increased firm performance. This finding is
imperative to the overall research question as it shows that there is an initial negative impact
associated with servitization when it is implemented within a Health and Fitness club.
Additionally, this finding has practical implications for managers within clubs as they will be
made aware of this occurrence and can plan accordingly.
This finding concurs with research carried out by Mathieu (2001). He states that, many
organisations can be culturally stubborn, at first, in their acceptance and adoption of a service
led approach. Additionally, employees of an organisation can find it difficult to adapt to a new
system as they are programmed to a routine manner of business and find it difficult to change
(Mathieu, 2001). Furthermore, a research study by Malleret (2006) reinforces the
implementation issues found within this study. Malleret (2006) states that there are a number
of management issues and cultural differences in adopting a service strategy such as staff
members being unaccepting of change.
A fear of the unknown has also been found to deter employees from accepting the servitization
of a basic product, as services are fundamentally different than that of basic product offerings
(Slack, 2005). Therefore, employees of Health and Fitness clubs may be reluctant to embrace
a service culture as they don’t understand it or what is expected of them in relation to
servitization. This finding is important as it highlights the reasons behind servitization not
resulting in an immediate increased firm performance and potentially leading to decreased firm
performance.

David O'Flaherty-Servitization-Dissertation

David O'Flaherty-Servitization-Dissertation

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