Bo Edvardsson

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Challenges in New ServiceDevelopment and Value

Creation through Service

ByBo Edvardson, Anders Gustafsson and Bo Enquist

ISD2005 conference14 - 17 August 2005, Karlstad University Sweden

Bo Edvardsson, Professor at the Service Research Center, Karlstad University, Sweden.Tel +46 54 700 15 57, e-mail: [email protected]

Anders Gustafsson, Professor at the Service Research Center, Karlstad University, Sweden.Tel +46 54 700 15 e-mail: [email protected]

Bo Enquist, Associate Professor at the Service Research Center, Karlstad University, Sweden.Tel +46 54 700 15 35, e-mail: [email protected]


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Centrum fr Tjnsteforskning - CTF

Service Research Center


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AgendaAim and Structure

Background and the Concept Service

Service Competition and Value Creationthrough Service

The Experience Concept and Experience-based Service Value

Critical Success factors

The Future


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1. Aim and Structure

The aim is to identify and

discuss challenges andsuccess factors in newservice development.


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Our focus is firstly on challenges in the

new business landscape, where servicecompetition and new technology putpressure on companies and markets todevelop service offerings preferred by the

customers on the basis of value in use.Secondly we focus on service valuecreation through favorable customerexperiences.

We have chosen IKEA as our empiricalillustration.


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2.BackgroundCompanies are searching for new ways todifferentiate their market offerings in order tostay competitive and make a profit (Shaw andIvins, 2002).

Companies create new customer value throughservice and favorable customer experiences.Products become platforms for services andexperiences.

Today we want to establish a dialogue with thecustomer throughout the entire ownership

experience. We want to talk to and touch ourcustomers at every step of the way Ford


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The challenge is to move/shift from a productcompany to stage services and favorable

customer experiences.

Technology infusion in service drive change:SST, ICT,E-business etc. Many servicesbecome time and place independent.

People trade time for money. The result ismore meals out, more in-home services, andless time spent shopping for physical goods.


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Services can be personalized innew ways, for instance usingindividualized home pages.

Service providers offer a resource-base for customers to use whencreating and producing services.


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New technology puts more power intothe hands of the customer; it is easierfor the customers to choose among the

best deals available from any serviceprovider.

The empowered customer.


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A service provider can in turnhave easy access directly to acustomer and thus is able to cut

out the middle player.Dell Computers is using thisapproach in their marketing withthe slogan direct from the

source.


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Grove et al (2003) argue for the need toexplore the role of technology incommunication, delivery, sale and supportof services and the nature of serviceexcellence when the service is technology-

based.

We need more research on the impact ofhigh-technology service dimension on thedemand for high-touch features.


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The Service Concept

Def Service: Linked activities andinteractions provided as solutionsto customers problems.

Services as a category of marketofferings.

Service as a perspective on value

creation focusing on value in usefor customers.


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Customeroutcome

Prerequisites

for theservice

Customerprocess


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Concept

Process

System

Model of the prerequisites of the service


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Customer

Outcome

Customer

Process

Serv i ce Deve l opment

Se rv i ce P re requ i s i t es

An integrated model of service development


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3. Service Competition and Strategy

Service is one way for companiesto differentiate their marketofferings and relationships andthus create unique customer

value.


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Companies need to develop newservice processes and a service

structures as well as a serviceculture to support a number ofactivities and customer

processes.

Value-in-use (Vargo and Lusch,2004) and consumption judgmentsare focused on.


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Furthermore, companies too often

become locked into their own businessmodels. These companies are reluctant toattack their own business by installing new

technology, products, services, ordistribution channels.They become so focused on providingcustomers what they wanted yesterdaythat they miss the opportunities to createmarkets of tomorrow.


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Customers become co-creators or co-

producers of services andexperiences which may result inlasting customer value and long-

term relationships. Value-in-use (Vargo and Lusch,

2004) and consumption judgments

are related concepts.


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4. The experience concept andexperience-based service value

In the book The Future of Competition,Prahalad and Ramaswamy (2004) focus onco-creating unique value together with

customers, and argue that value is nowcentered in the experiences of consumersand not just embedded in products andservices.

Customer delight and customer perceivedvalue are linked to memorable, favorablecustomer experiences


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Customers must experience theintangible service in order to understand

it. As opposed to goods, services aremore difficult for customers to testdrive and thus assess the value.

Customers purchasing professional taxadvice have no knobs to turn, buttons topush, or pictures to see.

Customers perception of risk tends to behigh for services because services cannotbe touched, smelled, tasted, or tried onbefore urchase.


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We define a service experience as theservice encounter and/or service process

that creates the customers cognitive,emotional, and behavioral responsesresulting in a mental mark or a memory

Some of the experiences are especiallyfavorable and others are particularlyunfavorable. Both tend to stay in thecustomers (long-term) memory.

We call these experiences memorable.


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Shopping at IKEA should be anice experience for all themembers of the family. The firstand last impressions are mostimportant. The last experience ofa customer leaving IKEA store islow cost, re-enforcing through

the low-price of hot dogs.


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Customers respond to an event in order

to maintain positive emotions and toavoid negative emotions.

During the consumption experience,various types of emotions can be

elicited, and these customer emotionsconvey important information on howthe customer will ultimately assess theservice encounter and subsequently,the overall relationship quality (Wong2004, p. 369).


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5. Critical success factors ForQulity in developing new services

and suggestions for future research

Findings from our research onhow to successfully develop

and launch new services:


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1. Develop a deep and thoroughunderstanding of the customer and

what creates value through the lensof the customer.2. Create a customer-centric service

culture within the company.

3. Stay focused on your customers.4. Apply a multi-method approach.5. Involve the customer in the

development process.6. Appoint multi-teams.


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7. Manage internal and externalcommunication.

8. Appoint a project leader with the skillsto lead, coach, and develop teammembers.

9. Take a holistic approach.10. Focus on the whole integratedcustomer solution and the totalcustomer experience.

11. Monitor and understand markets andfuture trends.


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IKEA emphasizes the lens of the

customers, the language of the customers,and solutions to real life problems at home.

IKEA focuses on total customerexperiences and how they are formed

during use and consumption.

These experiences are filled with emotionalenergy since they are established during

periods of tension and adventure.


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IKEA suggests that the values of thecustomers need to be understood and

guide design, advertising, catalogues,development teams etc.

The furniture becomes a physical artifactwhich represents and expresses these core

customer values. This is important toattract, touch, and retain customers.

Values among the majority of people andthe internal culture of IKEA must match.

This is what customer focus, customercentricity, and to be customer driven is allabout.


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The service culture is based on

customer related norms and valuesas in the case of IKEA with thevalues among the majority of

people. Values serve as a compassto make sense of a complex world.The values become a compass for

how to act when guidelines andinstructions are not enough


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In IKEA, touch-points are important forcreating great experiences and mental

marks.

IKEA customers are involved by designingtheir own solutions, assembling thefurniture, using the catalogue, using theInternet, getting advice from professionals,e.g., architects in the store, and using

technology to simulate the solution and testit before purchase and consumption.


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The focus is not on the furnitureas such but on the value in use athome that addresses every day

life needs.Functional quality is importantbecause design creates attraction

but the total customer experiencein the form of individualizedcustomer solutions is the acid test.


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IKEA has developed methods originatingin behavioral science and anthropology.

For example, IKEA designers will study afamily with small children on a slushywinters afternoon as they return homefrom work and school and enter the

house.Wet raincoats and muddy shoes arepacked together with sweaters and bags.The IKEA designer will ask, do we have a

full range of entrance hall and storagefurniture, carpets, textiles, and hangerswhich will work in such a situation?


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6. The futureThe normal label will be Value driven new servicedevelopment

Service innovations, service design and new servicedevelopment will be critical for company growth,competitiveness and profitability.Various technology enablers will fuel this development andhigh tech will be combined with high touch services.Services will be carried out by customers at a time and placeof their convenience.From service markets to the global service resource space.The borderless, virtual and networked organization will be areality.Customers are co-creators and provided with capabilities and

resources to serve themselves in completely new ways.The empowered and creative customer will compete withother market actorsSophisticated customer databases with data on customersbehaviors support personalized service solutions.

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Bo Edvardsson