Service Strategy Service Strategy

Learning ObjectivesLearning Objectives

Formulate a strategic service vision. Discuss the competitive environment of services. Describe how a service competes using the three generic

service strategies. Discuss the service purchase decision. Discuss the competitive role of information in services. Explain the role of the virtual value chain in service innovation. Discuss the limits in the use of information. Categorize a service firm according to its stage of Categorize a service firm according to its stage of

competitiveness.competitiveness. Conduct a data envelopment analysis (DEA).Conduct a data envelopment analysis (DEA).

Strategic Service VisionTarget Market Segments

Strategic Service VisionTarget Market Segments

What are common characteristics of important market What are common characteristics of important market segments?segments?

What dimensions can be used to segment the market, What dimensions can be used to segment the market, demographic, psychographic?demographic, psychographic?

How important are various segments?How important are various segments? What needs does each have?What needs does each have? How well are these needs being served, in what manner, How well are these needs being served, in what manner,

by whom? by whom?

Strategic Service VisionService Concept

Strategic Service VisionService Concept

What are important elements of the service to be provided, What are important elements of the service to be provided, stated in terms of results produced for customers?stated in terms of results produced for customers?

How are these elements supposed to be perceived by the How are these elements supposed to be perceived by the target market segment, by the market in general, by target market segment, by the market in general, by employees, by others?employees, by others?

How do customers perceive the service concept?How do customers perceive the service concept? What efforts does this suggest in terms of the manner in What efforts does this suggest in terms of the manner in

which the service is designed, delivered, marketed?which the service is designed, delivered, marketed?

Strategic Service VisionOperating Strategy

Strategic Service VisionOperating Strategy

What are important elements of the strategy: operations, What are important elements of the strategy: operations, financing, marketing, organization, human resources, financing, marketing, organization, human resources, control?control?

On which will the most effort be concentrated?On which will the most effort be concentrated? Where will investments be made?Where will investments be made? How will quality and cost be controlled: measures, How will quality and cost be controlled: measures,

incentives, rewards?incentives, rewards? What results will be expected versus competition in terms What results will be expected versus competition in terms

of, quality of service, cost profile, productivity, of, quality of service, cost profile, productivity, morale/loyalty of servers?morale/loyalty of servers?

Strategic Service VisionService Delivery System

Strategic Service VisionService Delivery System

What are important features of the service delivery system What are important features of the service delivery system including: role of people, technology, equipment, layout, including: role of people, technology, equipment, layout, procedures?procedures?

What capacity does it provide, normally, at peak levels?What capacity does it provide, normally, at peak levels? To what extent does it, help insure quality standards, To what extent does it, help insure quality standards,

differentiate the service from competition, provide barriers differentiate the service from competition, provide barriers to entry by competitors?to entry by competitors?

Competitive Environment of ServicesCompetitive Environment of Services

Relatively Low Overall Entry BarriersRelatively Low Overall Entry Barriers Economies of Scale LimitedEconomies of Scale Limited High Transportation CostsHigh Transportation Costs Erratic Sales FluctuationsErratic Sales Fluctuations No Power Dealing with Buyers or SuppliersNo Power Dealing with Buyers or Suppliers Product Substitutions for ServiceProduct Substitutions for Service High Customer LoyaltyHigh Customer Loyalty Exit Barriers Exit Barriers

Competitive Service Strategies (Overall Cost Leadership)

Competitive Service Strategies (Overall Cost Leadership)

Seeking Out Low-cost CustomersSeeking Out Low-cost Customers Standardizing a Custom Service Standardizing a Custom Service Reducing the Personal Element in Service Reducing the Personal Element in Service

Delivery (promote self-service)Delivery (promote self-service) Reducing Network Costs (hub and spoke)Reducing Network Costs (hub and spoke) Taking Service Operations Off-lineTaking Service Operations Off-line

Competitive Service Strategies (Differentiation)

Competitive Service Strategies (Differentiation)

Making the Intangible Tangible (memorable)Making the Intangible Tangible (memorable) Customizing the Standard ProductCustomizing the Standard Product Reducing Perceived RiskReducing Perceived Risk Giving Attention to Personnel TrainingGiving Attention to Personnel Training Controlling QualityControlling Quality

Note: Differentiation in service means being unique in brand image, technology use, features, or reputation for customer service.

Competitive Service Strategies (Focus)

Competitive Service Strategies (Focus)

Buyer Group: (e.g. USAA insurance and Buyer Group: (e.g. USAA insurance and military officers)military officers)

Service Offered: (e.g. Shouldice Hospital Service Offered: (e.g. Shouldice Hospital and hernia patients)and hernia patients)

Geographic Region: (e.g. Austin Cable Geographic Region: (e.g. Austin Cable Vision and TV watchers)Vision and TV watchers)

Customer Criteria for Selecting a Service ProviderCustomer Criteria for Selecting a Service Provider

Availability (24 hour ATM) Convenience (Site location) Dependability (On-time performance) Personalization (Know customer’s name) Price (Quality surrogate) Quality (Perceptions important) Reputation (Word-of-mouth) Safety (Customer well-being) Speed (Avoid excessive waiting)

Service Purchase DecisionService Purchase Decision

Service QualifierService Qualifier: To be taken seriously a : To be taken seriously a certain level must be attained on the certain level must be attained on the competitive dimension, as defined by other competitive dimension, as defined by other market players. market players. ExamplesExamples are cleanliness for a are cleanliness for a fast food restaurant or safe aircraft for an fast food restaurant or safe aircraft for an airline.airline.

Service WinnerService Winner: The competitive dimension : The competitive dimension used to make the final choice among used to make the final choice among competitors. competitors. ExampleExample is price. is price.

Service Purchase Decision (cont.)Service Purchase Decision (cont.)

Service LoserService Loser: Failure to deliver at or : Failure to deliver at or above the expected level for a competitive above the expected level for a competitive dimension. dimension. ExamplesExamples are failure to repair are failure to repair auto (dependability), rude treatment auto (dependability), rude treatment (personalization) or late delivery of package (personalization) or late delivery of package (speed). (speed).

Competitive Role of Information in Services

Strategic Focus Competitive Use of Information Strategic Focus Competitive Use of Information On-line Off-lineOn-line Off-line (Real time) (Analysis)(Real time) (Analysis) Creation of barriers to entry: Data base asset:Creation of barriers to entry: Data base asset: External Reservation system Selling informationExternal Reservation system Selling information (Customer) Frequent user club Development of services(Customer) Frequent user club Development of services Switching costs Micro-marketingSwitching costs Micro-marketing Revenue generation: Productivity enhancement:Revenue generation: Productivity enhancement: Internal Yield management Inventory statusInternal Yield management Inventory status (Operations) Point of sale Data envelopment(Operations) Point of sale Data envelopment Expert systems analysis (DEA) Expert systems analysis (DEA)

The Virtual Value Chain

MarketMarketplaceplace vs Market vs Marketspacespace Creating New Markets Using Information (Gather, Creating New Markets Using Information (Gather,

Organize, Select, Synthesize, and Distribute)Organize, Select, Synthesize, and Distribute) Three Stage EvolutionThree Stage Evolution

• 1st Stage (Visibility): See physical operations more • 1st Stage (Visibility): See physical operations more effectively with information – Ex. USAA “paperless operation”effectively with information – Ex. USAA “paperless operation” • 2 • 2ndnd Stage (Mirroring Capability): Substitute virtual activities Stage (Mirroring Capability): Substitute virtual activities for physical – Ex. USAA “automate underwriting”for physical – Ex. USAA “automate underwriting” • 3 • 3rdrd Stage (New Customer Relationships): Draw on Stage (New Customer Relationships): Draw on information to deliver value to customer in new ways – Ex. information to deliver value to customer in new ways – Ex. USAA “event oriented service”USAA “event oriented service”

Limits in the Use of Information

Anti-competitive (Barrier to entry)Anti-competitive (Barrier to entry)

Fairness (Yield management)Fairness (Yield management)

Invasion of Privacy (Micro-marketing)Invasion of Privacy (Micro-marketing)

Data Security (Medical records)Data Security (Medical records)

Reliability (Credit report)Reliability (Credit report)

Using Information to Categorize CustomersUsing Information to Categorize Customers

CodingCoding grades customers on how profitable their grades customers on how profitable their business is.business is.

RoutingRouting is used by call centers to place customers is used by call centers to place customers in different queues based on customer code.in different queues based on customer code.

TargetingTargeting allows choice customers to have fees allows choice customers to have fees waived and get other hidden discounts.waived and get other hidden discounts.

SharingSharing data about your transaction history with data about your transaction history with other firms is a source of revenue.other firms is a source of revenue.

Stages in Service Firm CompetitivenessStages in Service Firm Competitiveness

1. Available for service 2. Journeyman 3. Distinctive competence 4. World-class service delivery1. Available for service 2. Journeyman 3. Distinctive competence 4. World-class service delivery

Customers patronize service Customers neither seek Customers seek out the firm The company’s name is synonymousCustomers patronize service Customers neither seek Customers seek out the firm The company’s name is synonymous firm for reasons other than out nor avoid the firm. on the basis of its sustained with service excellence. Its servicefirm for reasons other than out nor avoid the firm. on the basis of its sustained with service excellence. Its service performance. reputation for meeting doesn’t just satisfy customers; itperformance. reputation for meeting doesn’t just satisfy customers; it customer expectations customer expectations delightsdelights them and thereby expands them and thereby expands customer expectations to levels itscustomer expectations to levels its competitors are unable to fulfill.competitors are unable to fulfill.

Operations is reactive, Operations functions in a Operations continually excels, Operations is a quick learner and fastOperations is reactive, Operations functions in a Operations continually excels, Operations is a quick learner and fast at best. mediocre, uninspired reinforced by personnel innovator; it masters every step of the at best. mediocre, uninspired reinforced by personnel innovator; it masters every step of the fashion. management and systems service delivery process and providesfashion. management and systems service delivery process and provides that support an intense capabilities that are superior tothat support an intense capabilities that are superior to customer focus. competitors.customer focus. competitors. SERVICE QUALITYSERVICE QUALITY Is subsidiary to cost, Meets some customer Exceeds customer Raises customer expectations andIs subsidiary to cost, Meets some customer Exceeds customer Raises customer expectations and highly variable. expectations; consistent expectations; consistent seeks challenge; improveshighly variable. expectations; consistent expectations; consistent seeks challenge; improves on one or two key on multiple dimensions. continuously.on one or two key on multiple dimensions. continuously. dimensions.dimensions.

Stages in Service Firm CompetitivenessStages in Service Firm Competitiveness

1. Available for service 2. Journeyman 3. Distinctive competence 4. World-class service delivery1. Available for service 2. Journeyman 3. Distinctive competence 4. World-class service delivery

BACK OFFICEBACK OFFICECounting room. Contributes to service, plays Is equally valued with front Is proactive, develops its ownCounting room. Contributes to service, plays Is equally valued with front Is proactive, develops its own an important role in the total office; plays integral role. capabilities, and generatesan important role in the total office; plays integral role. capabilities, and generates service, is given attention, opportunities.service, is given attention, opportunities.

but is still a separate role.but is still a separate role.CUSTOMERCUSTOMERUnspecified, to be A market segment whose A collection of individuals A source of stimulation, ideas,Unspecified, to be A market segment whose A collection of individuals A source of stimulation, ideas,satisfied at minimum cost. basic needs are understood. whose variation in needs is and opportunity.satisfied at minimum cost. basic needs are understood. whose variation in needs is and opportunity. understood.understood.INTRODUCTION OF NEW TECHNOLOGYINTRODUCTION OF NEW TECHNOLOGYWhen necessary for When justified by cost When promises to enhance Source of first-mover advantages,When necessary for When justified by cost When promises to enhance Source of first-mover advantages,survival, under duress. savings. service. creating ability to do things yoursurvival, under duress. savings. service. creating ability to do things your

competitors can’t do.competitors can’t do.WORKFORCEWORKFORCENegative constraint. Efficient resource; disciplined; Permitted to select among Innovative; creates procedures.Negative constraint. Efficient resource; disciplined; Permitted to select among Innovative; creates procedures. follows procedures. alternative procedures.follows procedures. alternative procedures.FRONT-LINE MANAGEMENTFRONT-LINE MANAGEMENTControls workers. Controls the process. Listens to customers; coaches Is listened to by top managementControls workers. Controls the process. Listens to customers; coaches Is listened to by top management

and facilitates workers. as a source of new ideas. Mentors and facilitates workers. as a source of new ideas. Mentors

works to enhance their career. works to enhance their career.

America West Airlines StrategyAmerica West Airlines Strategy

TargetTarget Strategic AdvantageStrategic Advantage

Low cost UniquenessLow cost Uniqueness

Entire Overall cost DifferentiationEntire Overall cost Differentiation

Market leadershipMarket leadership

Market FocusMarket Focus

Segment Segment

America West Winning CustomersAmerica West Winning Customers

Service Qualifiers:Service Qualifiers:

Service Winners:Service Winners:

Service Losers:Service Losers:

America West Strategic Service VisionAmerica West Strategic Service Vision

Target market segmentsTarget market segments

Service conceptService concept

Operating strategyOperating strategy

Service delivery systemService delivery system

America West Airlines PositioningAmerica West Airlines Positioning

CABIN SERVICECABIN SERVICE

Full ServiceFull Service

PREFLIGHT SERVICEPREFLIGHT SERVICE Inconvenient ConvenientInconvenient Convenient

No AmenitiesNo Amenities

Mrs. Fields Strategic Use of Information

Strategic Focus Competitive Use of InformationStrategic Focus Competitive Use of Information

On-line Off-lineOn-line Off-line

(Real time) (Analysis)(Real time) (Analysis)

Creation of barriers to entry: Data base asset:Creation of barriers to entry: Data base asset:

ExternalExternal

(Customer) (Customer)

Revenue generation: Productivity enhancement:Revenue generation: Productivity enhancement:

InternalInternal

(Operations)(Operations)

Mrs. Fields Management Information System

How might the management information How might the management information system contribute to a reported 100% system contribute to a reported 100% turnover of store managers?turnover of store managers?

Will the management information system Will the management information system support or inhibit the expansion of Mrs. support or inhibit the expansion of Mrs. Field’s outlets? Why? Field’s outlets? Why?

Alamo Drafthouse PositioningAlamo Drafthouse Positioning

MOVIE SELECTIONMOVIE SELECTION

FOOD QUALITYFOOD QUALITY

ManyManyFewFew

PoorPoor

GoodGood

Alamo Drafthouse Strategic Service VisionAlamo Drafthouse Strategic Service Vision

Target market segmentsTarget market segments

Service conceptService concept

Operating strategyOperating strategy

Service delivery systemService delivery system

Alamo Drafthouse Winning CustomersAlamo Drafthouse Winning Customers

QualifiersQualifiers

Service winnersService winners

Service losersService losers

Alamo Drafthouse Profitability RecommendationsAlamo Drafthouse Profitability Recommendations

Discussion TopicsDiscussion Topics

1.1. Give examples of service firms that use both the strategy Give examples of service firms that use both the strategy of focus and differentiation and the strategy of focus and of focus and differentiation and the strategy of focus and overall cost leadership.overall cost leadership.

2.2. What ethical issues are associated with micro-marketing?What ethical issues are associated with micro-marketing?3.3. For each of the three generic strategies (i.e., cost For each of the three generic strategies (i.e., cost

leadership, differentiation, and focus) which of the four leadership, differentiation, and focus) which of the four competitive uses of information is most powerful?competitive uses of information is most powerful?

4.4. Give an example of a firm that begin as world-class and Give an example of a firm that begin as world-class and has remained in that category.has remained in that category.

5.5. Could firms in the “world-class service delivery” stage of Could firms in the “world-class service delivery” stage of competitiveness be descried as “learning organizations”?competitiveness be descried as “learning organizations”?

Interactive Class ExerciseInteractive Class Exercise

The class divides and debates the The class divides and debates the proposition “Frequent flyer award programs proposition “Frequent flyer award programs are or are not anticompetitive.”are or are not anticompetitive.”