Service Strategy Service Strategy

Learning ObjectivesLearning Objectives

Formulate a strategic service vision. Describe how a service has addressed each element in the

strategic service concept. 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 Explain the role of the virtual value chain in service

innovation. Discuss the limits in the use of information

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 Concepts

Strategic Service VisionService Concepts

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?

Service Design ElementsService Design Elements

Structural:Structural:Delivery systemDelivery system (front & back office)Facility designFacility design (aesthetics, layout)LocationLocation (competition, site characteristics)Capacity planningCapacity planning (number of (number of servers))

ManagerialManagerialService encounterService encounter (culture, empowerment)QualityQuality (measurement, guarantee)Managing capacity and demandManaging capacity and demand (queues)Information Information (data collection, resource)

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 effectively with information – Ex. USAA “paperless operation”operation” • 2 • 2ndnd Stage (Mirroring Capability): Substitute virtual Stage (Mirroring Capability): Substitute virtual activities for physical – Ex. USAA “automate underwriting”activities 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)

America West Airlines Generic Competitive StrategyAmerica West Airlines Generic Competitive 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 Airlines Competitive FeaturesAmerica West Airlines Competitive Features

Service Qualifiers:Service Qualifiers:

Service Winners:Service Winners:

Service Losers:Service Losers:

America West Airlines Strategic Service ConceptAmerica West Airlines Strategic Service Concept

Delivery System:Delivery System:

Location:Location:

Facility Design:Facility Design:

Capacity PlanningCapacity Planning

America West Airlines Strategic Service Concept (cont.)America West Airlines Strategic Service Concept (cont.)

Service Encounter:Service Encounter:

Quality:Quality:

Managing Capacity and Demand:Managing Capacity and Demand:

Information:Information:

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

AdvantagesAdvantages

DisadvantagesDisadvantages

Mrs. Fields Questions

How might the MIS contribute to a reported How might the MIS contribute to a reported 100% turnover of store managers?100% turnover of store managers?

Will the MIS support or inhibit the growth Will the MIS support or inhibit the growth of outlets (domestic and overseas)? of outlets (domestic and overseas)?

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

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.

Use the service design elements for a service of your Use the service design elements for a service of your choice to illustrate how all eight elements support the choice to illustrate how all eight elements support the service strategy.service strategy.

What ethical issues are associated with micro-marketing?What ethical issues are associated with micro-marketing? 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?

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.”