Service Strategy

1
Service Strategy
2
Learning 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 competitiveness.
• Conduct a data envelopment analysis (DEA).

3
Strategic Service VisionTarget Market Segments

• What are common characteristics of important
  market segments?
• What dimensions can be used to segment the
  market, demographic, psychographic?
• How important are various segments?
• What needs does each have?
• How well are these needs being served, in what
  manner, by whom?

4
Strategic Service VisionService Concept

• What are important elements of the service to be
  provided, stated in terms of results produced for
  customers?
• How are these elements supposed to be perceived
  by the target market segment, by the market in
  general, by employees, by others?
• How do customers perceive the service concept?
• What efforts does this suggest in terms of the
  manner in which the service is designed,
  delivered, marketed?

5
Strategic Service VisionOperating Strategy

• What are important elements of the strategy
  operations, financing, marketing, organization,
  human resources, control?
• On which will the most effort be concentrated?
• Where will investments be made?
• How will quality and cost be controlled
  measures, incentives, rewards?
• What results will be expected versus competition
  in terms of, quality of service, cost profile,
  productivity, morale/loyalty of servers?

6
Strategic Service VisionService Delivery System

• What are important features of the service
  delivery system including role of people,
  technology, equipment, layout, procedures?
• What capacity does it provide, normally, at peak
  levels?
• To what extent does it, help insure quality
  standards, differentiate the service from
  competition, provide barriers to entry by
  competitors?

7
Competitive Environment of Services

• Relatively Low Overall Entry Barriers
• Economies of Scale Limited
• High Transportation Costs
• Erratic Sales Fluctuations
• No Power Dealing with Buyers or Suppliers
• Product Substitutions for Service
• High Customer Loyalty
• Exit Barriers

8
Competitive Service Strategies (Overall Cost
Leadership)

• Seeking Out Low-cost Customers
• Standardizing a Custom Service
• Reducing the Personal Element in Service
  Delivery (promote self-service)
• Reducing Network Costs (hub and spoke)
• Taking Service Operations Off-line

9
Competitive Service Strategies (Differentiation)

• Making the Intangible Tangible (memorable)
• Customizing the Standard Product
• Reducing Perceived Risk
• Giving Attention to Personnel Training
• Controlling QualityNote Differentiation in
  service means being unique in brand image,
  technology use, features, or reputation for
  customer service.

10
Competitive Service Strategies (Focus)

• Buyer Group (e.g. USAA insurance and military
  officers)
• Service Offered (e.g. Shouldice Hospital and
  hernia patients)
• Geographic Region (e.g. Austin Cable Vision and
  TV watchers)

11
Customer Criteria for Selecting a Service
Provider

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

12
Service Purchase Decision

• Service Qualifier To be taken seriously a
  certain level must be attained on the competitive
  dimension, as defined by other market players.
  Examples are cleanliness for a fast food
  restaurant or safe aircraft for an airline.
• Service Winner The competitive dimension used
  to make the final choice among competitors.
  Example is price.

13
Service Purchase Decision (cont.)

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

14
Competitive Role of Information in Services

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

15
The Virtual Value Chain

• Marketplace vs Marketspace
• Creating New Markets Using Information (Gather,
  Organize, Select, Synthesize, and Distribute)
• Three Stage Evolution 1st Stage (Visibility)
  See physical operations more effectively with
  information Ex. USAA paperless operation
  2nd Stage (Mirroring Capability) Substitute
  virtual activities for physical Ex. USAA
  automate underwriting 3rd Stage (New
  Customer Relationships) Draw on information to
  deliver value to customer in new ways Ex. USAA
  event oriented service

16
Limits in the Use of Information

• Anti-competitive (Barrier to entry)
• Fairness (Yield management)
• Invasion of Privacy (Micro-marketing)
• Data Security (Medical records)
• Reliability (Credit report)

17
Using Information to Categorize Customers

• Coding grades customers on how profitable their
  business is.
• Routing is used by call centers to place
  customers in different queues based on customer
  code.
• Targeting allows choice customers to have fees
  waived and get other hidden discounts.
• Sharing data about your transaction history with
  other firms is a source of revenue.

18
Stages in Service Firm Competitiveness

• 1. 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 companys name is
  synonymous
• firm for reasons other than
  out nor avoid the firm. on the basis
  of its sustained with service
  excellence. Its service
• performance.
  
  reputation for meeting
  doesnt just satisfy customers it
• 
  
  customer expectations
  delights them and thereby expands
• 
  
  
  customer expectations to
  levels its
• 
  
  
  competitors are unable to
  fulfill.
• Operations 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
• 
  fashion.
  management and systems
  service delivery process and provides
• 
  
  that support an intense
  capabilities that are superior to
• 
  
  customer focus.
  competitors.
• SERVICE QUALITY
• Is subsidiary to cost,
  Meets some customer Exceeds
  customer Raises customer
  expectations and
• highly variable.
  expectations consistent
  expectations consistent seeks
  challenge improves
• 
  on one or two key
  on multiple dimensions.
  continuously.
• 
  dimensions.

19
Stages in Service Firm Competitiveness

• 1. Available for service 2. Journeyman
  3. Distinctive competence
  4. World-class service delivery
• BACK OFFICE
• Counting 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
  generates
• 
  service, is given attention,
  
  opportunities.
• but is still a separate
  role.
• CUSTOMER
• 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.
• 
  
  understood.
• INTRODUCTION OF NEW TECHNOLOGY
• 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 your
• competitors cant do.
• WORKFORCE
• Negative constraint. Efficient
  resource disciplined Permitted to select
  among Innovative creates
  procedures.
• 
  follows procedures.
  alternative procedures.
• FRONT-LINE MANAGEMENT

20
America West Airlines Strategy

• Target Strategic
  Advantage
• Low cost
  Uniqueness
• Entire Overall cost
  Differentiation
• Market leadership
• Market
  Focus
• Segment

21
America West Winning Customers

• Service Qualifiers
• Service Winners
• Service Losers

22
America West Strategic Service Vision

• Target market segments
• Service concept
• Operating strategy
• Service delivery system

23
America West Airlines Positioning

• CABIN SERVICE
• Full Service
• PREFLIGHT SERVICE
• Inconvenient
  
  Convenient
• 
  
• 
  No Amenities

24
Mrs. Fields Strategic Use of Information

• Strategic Focus Competitive
  Use of Information
• On-line
  Off-line
• (Real
  time) (Analysis)
• Creation of
  barriers to entry Data base asset
• External
• (Customer)
• Revenue
  generation Productivity
  enhancement
• Internal
• (Operations)

25
Mrs. Fields Management Information System

• How might the management information system
  contribute to a reported 100 turnover of store
  managers?
• Will the management information system support or
  inhibit the expansion of Mrs. Fields outlets?
  Why?

26
Alamo Drafthouse Positioning
FOOD QUALITY
Good
MOVIE SELECTION
Many
Few
Poor
27
Alamo Drafthouse Strategic Service Vision

• Target market segments
• Service concept
• Operating strategy
• Service delivery system

28
Alamo Drafthouse Winning Customers

• Qualifiers
• Service winners
• Service losers

29
Alamo Drafthouse Profitability Recommendations

30
Discussion Topics

1. Give examples of service firms that use both the
   strategy of focus and differentiation and the
   strategy of focus and overall cost leadership.
2. What ethical issues are associated with
   micro-marketing?
3. For each of the three generic strategies (i.e.,
   cost leadership, differentiation, and focus)
   which of the four competitive uses of information
   is most powerful?
4. Give an example of a firm that begin as
   world-class and has remained in that category.
5. Could firms in the world-class service delivery
   stage of competitiveness be descried as learning
   organizations?

31
Interactive Class Exercise

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