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Chapter 5
Defining Service Strategies
Chapter 5Chapter 5
DEFINING SERVICE DEFINING SERVICE STRATEGIESSTRATEGIES
McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved.
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Chapter 5
Defining Service Strategies
LEARNING OBJECTIVES
• Explain how competition among service firms differs from competition among manufacturing companies.
• Describe why barriers to entry are low in service environments.
• Introduce several strategy models that enable service managers to formulate clear, focused strategies.
• Explain how the degree of customer contact affects decisions about workforce configuration.
• Describe how the complexity of the service and the degree of service customization interact to affect workforce decisions.
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Chapter 5
Defining Service Strategies
STRATEGIC MARKETING DECISIONS
• Product
• Price
• Place
• Promotion
• People
• Physical Evidence
• Process
The Marketing Mix
The Traditional Marketing Mix
The Expanded Marketing Mix for Services
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Chapter 5
Defining Service Strategies
STRATEGIC OPERATING DECISIONS
• Location
• Capacity
• Vertical Integration
• Process Technology
Structural Decisions
Infrastructural Decisions• Workforce
• Quality Management
• Policies and Procedures
• Organizational Structure
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Chapter 5
Defining Service Strategies
STRATEGY MODELS
• Strengths
• Weaknesses
• Opportunities
• Threats
SWOT Analysis
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Chapter 5
Defining Service Strategies
Exhibit 5.2SWOT ANALYSISStrengths WeaknessesAt what does your organization excel? Will your workforce be inadequately skilled?How strong is your organization in the market? Does your organization have sufficient Do you have a clear direction? What does your organization do poorly?What differentiates you from competitors? Is your organization adequately financed?Do you have a skilled workforce? Exceptional product? Strong customer base?
Opportunities Threats
What are the current market trends? What are your competitors doing?Are there niches in the market your organization can fill?
Are your products aging?
Does technology offer new service options? What policies/ laws affect your options?
Are your customers’ needs changing?
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Chapter 5
Defining Service Strategies
STRATEGY MODELS
• The risk of new competitors entering the industry.
• The threat of potential substitutes.
• The bargaining power of buyers.
• The bargaining power of suppliers.
• The degree of rivalry between the existing competitors
Five Forces Model
Porter, Michael E., Competitive Advantage: Creating and Sustaining Superior Performance, New York: The Free Press, 1985.
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Chapter 5
Defining Service Strategies
Exhibit 5.3THE FIVE FORCES MODEL
Potential New Entrants
Substitutes
Suppliers BuyersIndustry
Competitors(existing)
Threat of new entrants
Bargaining power
of buyers
Threat of substitutes
Bargaining power
of suppliers
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Chapter 5
Defining Service Strategies
THE CUSTOMER CONTACT MODEL
Types of Services
• Pure Services
• Mixed Services
• Quasi-Manufacturing Services
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Chapter 5
Defining Service Strategies
Exhibit 5.4THE SERVICE PROCESS MATRIX
Low High
Service Factory Service Shop
Airlines Hospital Trucking Auto repair Hotels Other repair services Resorts/ recreation
Mass Service Professional Service Retailing Physicians Wholesaling Lawyers Schools Accountants Retail banking Architects
Deg
ree
of L
abor
Int
ensi
ty
Degree of Interaction and Customization
Low
Hig
h
Source: Schmenner, Roger W. “How Can Service Businesses Survive and Prosper?”, Sloan Management Review, Vol. 27, No. 3, Spring 1986, p. 25.
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Chapter 5
Defining Service Strategies
Exhibit 5.5THE SERVICE PROCESS MATRIX
Source: Schmenner, Roger W. “How Can Service Businesses Survive and Prosper?”, Sloan Management Review, Vol. 27, No. 3, Spring 1986, p. 27.
Low Labor Intensity Challenges:
Capital Decisions Keeping up with Technology
Managing Demand Scheduling service delivery
Low Interaction/ Customization
Challenges:Differentiating in
marketMaking service “warm”
Managing physical surroundings
Developing operating procedures
High Labor Intensity Challenges:
Hiring workersTraining workers
Developing methods and controls
Assuring employee welfareScheduling workers
Controlling distant operationsStarting new unitsManaging growth
High Interaction/ Customization
Challenges:Managing costs
Maintaining qualityReacting to customers
in processManaging people in
processGaining employee
loyalty
Service FactoryLow labor, low
interaction/customization
Service ShopLow labor, high
Interaction/customization
Mass ServiceHigh labor, low
interaction/customization
Professional ServiceHigh labor, high
interaction/customization
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Chapter 5
Defining Service Strategies
Exhibit 5.6CUSTOMIZATION AND JUDGEMENT IN SERVICES
Source: Lovelock, Christopher H., "Classifying Services to Gain Strategic Marketing Insights," Journal of Marketing, Vol. 47 (Summer 1983), pp. 9-20.
High Low
Professional services Education (large classes)Surgery Preventive health programsTaxi service College food serviceBeauticianPlumberEducation (tutorials)Upscale restaurant
Telephone service Public transportationHotel service Routine appliance repairRetail banking Movie theatreFamily restaurant Spectator sports
Fast-food restaurant
Degre
e o
f Serv
ice W
ork
er
Judgm
ent
in
Meeti
ng C
ust
om
er
Needs
Degree of Customization
Hig
hLo
w
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Chapter 5
Defining Service Strategies
KEY TERMS
• Business Unit Strategy• Competitive Factors• Corporate Strategy• Customer Contact Model• Direct Customer Contact• Five Forces Model• Functional Strategy• Indirect Customer Contact
• Infrastructural Decisions• Marketing Mix• Mass Service• Professional Service• Service Factory• Service Shop• Structural Decisions• SWOT Analysis
