03 Service Strategy

Service Strategy Service Strategy Service Strategy Service Strategy

Learning ObjectivesLearning ObjectivesLearning ObjectivesLearning ObjectivesFormulate 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 informationExplain 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 SegmentsWhat 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?

Strategic Service VisionStrategic Service VisionService ConceptsService ConceptsWhat 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?

Strategic Service VisionStrategic Service VisionOperating StrategyOperating StrategyWhat 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?

Strategic Service VisionStrategic Service VisionService Delivery SystemService Delivery SystemWhat 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?

Service Design ElementsService Design ElementsService Design ElementsService Design ElementsStructural:

Delivery system (front & back office)Facility design (aesthetics, layout)Location (competition, site characteristics)Capacity planning (number of servers)

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

Staying FocusedStaying FocusedCrotts, Dickson and Ford, “Aligning Organizational Processes with

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

Communications:◦ Top Management Walks the Service Mission Talk◦ Departmental and Unit Goals are Aligned with Service Mission◦ Performance Standards are Aligned with Service Mission◦ Environmental Setting and Physical Design Communicate Service

Mission◦ Service Excellence Stories are Told and Successes Celebrated

HR:◦ Job Descriptions Include Service Mission◦ Job Ads Include Service Mission◦ Interviews Include Questions about Service Mission◦ Orientation Programs Stress Mission◦ Performance Appraisals Include and Reward Service Mission◦ Annual Training in Service Mission

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

Processes and Measurement:◦ Service Quality Systematically Measured◦ Feedback on Service Quality Systematically Provided to

All◦ Service Delivery System Design Reflects Service Mission

Competitive Environment of Competitive Environment of ServicesServicesCompetitive Environment of Competitive Environment of ServicesServicesRelatively Low Overall Entry BarriersEconomies of Scale LimitedHigh Transportation CostsErratic Sales FluctuationsNo Power Dealing with Buyers or

SuppliersProduct Substitutions for ServiceHigh Customer LoyaltyExit Barriers

Competitive Service Competitive Service Strategies Strategies Overall Cost Overall Cost LeadershipLeadership

Competitive Service Competitive Service Strategies Strategies Overall Cost Overall Cost LeadershipLeadershipSeeking Out Low-cost CustomersStandardizing a Custom Service Reducing the Personal Element in

Service Delivery (promote self-service)

Reducing Network Costs (hub and spoke)

Taking Service Operations Off-line

Competitive Service Competitive Service Strategies Strategies DifferentiationDifferentiationCompetitive Service Competitive Service Strategies Strategies DifferentiationDifferentiationMaking the Intangible Tangible

(memorable)Customizing the Standard ProductReducing Perceived RiskGiving Attention to Personnel TrainingControlling 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 FocusFocusCompetitive Service Competitive Service Strategies Strategies FocusFocusBuyer 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)

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 ProviderAvailability (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 DecisionService 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.

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

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 ChainMarketplace vs MarketspaceCreating 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”

Limits in the Use of Limits in the Use of InformationInformationAnti-competitive (Barrier to entry)

Fairness (Yield management)

Invasion of Privacy (Micro-marketing)

Data Security (Medical records)

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 Qualifiers

Service Winners

Service Losers

America America WestWest Winning Winning CustomersCustomers

America America WestWest Winning Winning CustomersCustomers

Target market segments

Service concept

Operating strategy

Service 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 Alamo Drafthouse PositioningPositioning

MOVIEMOVIE SELECTION SELECTION

FOOD QUALITYFOOD QUALITY

ManyManyFewFew

PoorPoor

GoodGood

Alamo Drafthouse Alamo Drafthouse Strategic Service VisionStrategic Service VisionTarget market segments

Service concept

Operating strategy

Service delivery system

Alamo Drafthouse Alamo Drafthouse Winning CustomersWinning CustomersQualifiers

Service winners

Service losers

Alamo Drafthouse Alamo Drafthouse Profitability Profitability RecommendationsRecommendations

Discussion TopicsDiscussion TopicsGive examples of service firms that use both

the strategy of focus and differentiation and the strategy of focus and overall cost leadership.

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

What ethical issues are associated with micro-marketing?

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?

Interactive Class ExerciseInteractive Class ExerciseDivide into two groups and

debate the following proposition:

Frequent flyer award programs are or are not anticompetitive