03 Service Strategy

Service Strategy Service Strategy Service Strategy Service Strategy

Learning ObjectivesLearning ObjectivesLearning 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 VisionStrategic Service VisionTarget Market SegmentsTarget Market Segments

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

► What dimensions can be used to segment the What dimensions can be used to segment the market, demographic, psychographic?market, 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 How well are these needs being served, in what

manner, by whom? manner, by whom?

Strategic Service VisionStrategic Service VisionService ConceptsService Concepts

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

► How are these elements supposed to be perceived How are these elements supposed to be perceived by the target market segment, by the market in by the target market segment, by the market in general, by employees, by others?general, by 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 What efforts does this suggest in terms of the

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

Strategic Service VisionStrategic Service VisionOperating StrategyOperating Strategy

► What are important elements of the strategy: What are important elements of the strategy: operations, financing, marketing, organization, operations, financing, marketing, organization, human resources, control?human resources, 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 What results will be expected versus competition in

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

Strategic Service VisionStrategic Service VisionService Delivery SystemService Delivery System

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

► What capacity does it provide, normally, at What capacity does it provide, normally, at peak levels?peak levels?

► To what extent does it, help insure quality To what extent does it, help insure quality standards, differentiate the service from standards, differentiate the service from competition, provide barriers to entry by competition, provide barriers to entry by competitors?competitors?

Service Design ElementsService Design ElementsService 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))

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

Staying FocusedStaying FocusedCrotts, Dickson and Ford, “Aligning Organizational Processes with Mission: The Crotts, Dickson and Ford, “Aligning Organizational Processes with Mission: The

case of service Excellence, Academy of Management Executive, 2005 19:3.case of service Excellence, Academy of Management Executive, 2005 19:3.

► Communications:Communications: Top Management Walks the Service Mission TalkTop Management Walks the Service Mission Talk Departmental and Unit Goals are Aligned with Service MissionDepartmental and Unit Goals are Aligned with Service Mission Performance Standards are Aligned with Service MissionPerformance Standards are Aligned with Service Mission Environmental Setting and Physical Design Communicate Service MissionEnvironmental Setting and Physical Design Communicate Service Mission Service Excellence Stories are Told and Successes CelebratedService Excellence Stories are Told and Successes Celebrated

► HR:HR: Job Descriptions Include Service MissionJob Descriptions Include Service Mission Job Ads Include Service MissionJob Ads Include Service Mission Interviews Include Questions about Service MissionInterviews Include Questions about Service Mission Orientation Programs Stress MissionOrientation Programs Stress Mission Performance Appraisals Include and Reward Service MissionPerformance Appraisals Include and Reward Service Mission Annual Training in Service MissionAnnual Training in Service Mission

Staying Focused (cont.)Staying Focused (cont.)

► Processes and Measurement:Processes and Measurement: Service Quality Systematically MeasuredService Quality Systematically Measured Feedback on Service Quality Systematically Provided to AllFeedback on Service Quality Systematically Provided to All Service Delivery System Design Reflects Service MissionService Delivery System Design Reflects Service Mission

Competitive Environment of Competitive Environment of ServicesServices

Competitive Environment of Competitive Environment of ServicesServices

►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 Competitive Service Strategies Strategies Overall Cost Overall Cost

LeadershipLeadership

Competitive Service Competitive Service Strategies Strategies Overall Cost Overall Cost

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

Service Service Delivery (promote self-Delivery (promote self-service)service)

►Reducing Network Costs (hub and Reducing Network Costs (hub and spoke)spoke)

►Taking Service Operations Off-lineTaking Service Operations Off-line

Competitive Service Competitive Service Strategies Strategies DifferentiationDifferentiation

Competitive Service Competitive Service Strategies Strategies DifferentiationDifferentiation

► 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 Competitive Service Strategies Strategies FocusFocus

Competitive Service Competitive Service Strategies Strategies FocusFocus

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

►Service Offered: (e.g. Shouldice Service Offered: (e.g. Shouldice Hospital and hernia patients)Hospital 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 Customer Criteria for SelectingSelecting

a Service Provider a Service Provider

Customer Criteria for Customer Criteria for SelectingSelecting

a Service Provider 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 DecisionService 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 fast food are cleanliness for a fast food

restaurant or safe aircraft for an airline.restaurant or safe aircraft for an airline.

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

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

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

►Service LoserService Loser:: Failure to deliver at or Failure to deliver at or above the expected level for a above the expected level for a competitive dimension. competitive dimension. ExamplesExamples are failure to repair auto are failure to repair auto

(dependability), rude treatment (dependability), rude treatment (personalization) or late delivery of (personalization) or late delivery of package (speed). package (speed).

Competitive Role of Competitive Role of Information in ServicesInformation in Services

Competitive use of InformationCompetitive use of Information

Online (Real time)Online (Real time) Offline (Analysis)Offline (Analysis)

External External (Customer)(Customer)

Creation of barriers to Creation of barriers to entry:entry:

Reservation systemReservation system

Frequent user clubFrequent user club

Switching costsSwitching costs

Database asset:Database asset:

Selling informationSelling information

Development of servicesDevelopment of services

MicromarketingMicromarketing

Internal Internal (Operations)(Operations)

Revenue generation:Revenue generation:

Yield managementYield management

Point of salesPoint of sales

Expert systemsExpert systems

Productivity enhancement:Productivity enhancement:

Inventory StatusInventory Status

Data envelopment analysis Data envelopment analysis (DEA)(DEA)

The Virtual Value ChainThe 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):1st Stage (Visibility): See physical operations more See physical operations more effectively with information – Ex. USAA “paperless effectively with information – Ex. USAA “paperless operation”operation” • • 22ndnd Stage (Mirroring Capability): Stage (Mirroring Capability): Substitute virtual Substitute virtual activities for physical – Ex. USAA “automate activities for physical – Ex. USAA “automate underwriting”underwriting” • • 33rdrd Stage (New Customer Relationships): Stage (New Customer Relationships): Draw on Draw on information to deliver value to customer in new ways – information to deliver value to customer in new ways – Ex. USAA “event oriented service”Ex. USAA “event oriented service”

Limits in the Use of Limits in the Use of InformationInformation

►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)

Target Strategic Advantage

Low cost Uniqueness

Entire Market

Overall cost leadership

Differentiation

Market Segment

Focus

America America WestWest Airlines Strategy Airlines StrategyAmerica America WestWest Airlines Strategy Airlines Strategy

►Service QualifiersService Qualifiers

►Service WinnersService Winners

►Service LosersService Losers

America America WestWest Winning Winning CustomersCustomers

America America WestWest Winning Winning CustomersCustomers

►Target market segmentsTarget market segments

►Service conceptService concept

►Operating strategyOperating strategy

►Service delivery systemService delivery system

America West Strategic Service America West Strategic Service VisionVision

America West Strategic Service America West Strategic Service VisionVision

CABIN SERVICECABIN SERVICE

Full ServiceFull Service

PREFLIGHT SERVICEPREFLIGHT SERVICE

InconvenienInconvenientt

ConvenientConvenient

No AmenitiesNo Amenities

America America WestWest Airlines Airlines PositioningPositioning

America America WestWest Airlines Airlines PositioningPositioning

Alamo Drafthouse PositioningAlamo Drafthouse Positioning

MOVIEMOVIE SELECTION SELECTION

FOOD QUALITYFOOD QUALITY

ManyManyFewFew

PoorPoor

GoodGood

Alamo Drafthouse Strategic Alamo Drafthouse Strategic Service VisionService Vision

►Target market segmentsTarget market segments

►Service conceptService concept

►Operating strategyOperating strategy

►Service delivery systemService delivery system

Alamo Drafthouse Winning Alamo Drafthouse Winning CustomersCustomers

►QualifiersQualifiers

►Service winnersService winners

►Service losersService losers

Alamo Drafthouse Alamo Drafthouse Profitability Profitability

RecommendationsRecommendations►

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Discussion TopicsDiscussion Topics

► Give examples of service firms that use both the Give examples of service firms that use both the strategy of focus and differentiation and the strategy strategy of focus and differentiation and the strategy of focus and overall cost leadership.of focus and 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 choice to illustrate how all eight elements support the service strategy.the service strategy.

► What ethical issues are associated with micro-What ethical issues are associated with micro-marketing?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 leadership, differentiation, and focus) which of the four competitive uses of information is most four competitive uses of information is most powerful?powerful?

Interactive Class ExerciseInteractive Class Exercise

►Divide into two groups and debate the Divide into two groups and debate the following proposition:following proposition:

Frequent flyer award programs are or Frequent flyer award programs are or are not anticompetitiveare not anticompetitive