Chapter 3Chapter 3Service Strategy Service Strategy

Chapter 3Chapter 3Service Strategy Service Strategy

Learning ObjectivesLearning ObjectivesLearning ObjectivesLearning Objectives1. Formulate a strategic service vision.2. Discuss the competitive environment of services.3. Describe how a service competes using the three

generic service strategies.4. Discuss the service purchase decision.5. Discuss the competitive role of information in

services.6. Explain the role of the virtual value chain in service

innovation.7. Discuss the limits in the use of information.8.8. Categorize a service firm according to its stage of Categorize a service firm according to its stage of

competitiveness.competitiveness.9.9. Conduct a data envelopment analysis (DEA).Conduct a data envelopment analysis (DEA).

Learning Objectives Learning Objectives (Short List)(Short List)

• Strategic VisionStrategic Vision

• CompetitivenessCompetitiveness

• InformationInformation

Strategic Service Vision Strategic Service Vision ElementsElements

1.1. Target Market SegmentTarget Market Segment

2.2. Service ConceptService Concept

3.3. Operating StrategyOperating Strategy

4.4. Service Delivery SystemService Delivery System

Target 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?

Service ConceptService Concept

• 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 How are these elements supposed to be perceived by the target market segment, by the perceived by the target market segment, by the market in general, by employees, by others?market in 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, manner in which the service is designed, delivered, marketed?delivered, marketed?

Operating 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: How will quality and cost be controlled:

measures, incentives, rewards?measures, incentives, rewards?• What results will be expected versus competition What results will be expected versus competition

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

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

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 No Power Dealing with Buyers or

SuppliersSuppliers• Product Substitutions for ServiceProduct Substitutions for Service• High Customer LoyaltyHigh Customer Loyalty• Exit Barriers Exit Barriers

Competitive Service Competitive Service StrategiesStrategies

1.1. Overall Cost LeadershipOverall Cost Leadership

2.2. DifferentiationDifferentiation

3.3. FocusFocus

Overall Cost LeadershipOverall Cost LeadershipOverall Cost LeadershipOverall Cost Leadership

• 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

DifferentiationDifferentiationDifferentiationDifferentiation

• Making the Intangible Tangible Making the Intangible Tangible (memorable)(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.

FocusFocusFocusFocus

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

Interactive Class Interactive Class ExerciseExercise

Give examples of service firms Give examples of service firms that use the strategy of focus that use the strategy of focus and differentiation.and differentiation.

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

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 Provider1. Availability2. Convenience3. Dependability4. Personalization

5. Price

6. Quality

7. Reputation8. Safety9. Speed

Service Purchase Service Purchase DecisionDecision

Service Purchase Service Purchase DecisionDecision

• Service Qualifier:Service 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.

• Service Winner:Service Winner: The competitive dimension The competitive dimension used to make the final choice among used to make the final choice among competitors.competitors.

• Service Loser:Service Loser: Failure to deliver at or above Failure to deliver at or above the expected level for a competitive dimension. the expected level for a competitive dimension.

Competitive Role of Competitive Role of Information in ServicesInformation 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 (Customer) Frequent user club Development of

servicesservices Switching costs Micro-marketingSwitching costs Micro-marketing Revenue generation: Productivity Revenue generation: Productivity

enhancement: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 ChainThe Virtual Value ChainMarketMarketplaceplace vs Market vs Marketspacespace• Value-adding InformationValue-adding Information

1.1. GatherGather2.2. OrganizeOrganize3.3. SelectSelect4.4. SynthesizeSynthesize5.5. DistributeDistribute

• Stages of EvolutionStages of Evolution1.1. VisibilityVisibility2.2. Mirroring CapabilityMirroring Capability3.3. New Customer RelationshipsNew Customer Relationships

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)

Class DiscussionClass Discussion

What ethical issues are What ethical issues are associated with micro-associated with micro-marketing in the:marketing in the:• Breakfast Cereal Industry?Breakfast Cereal Industry?• Beer Industry?Beer Industry?• Pharmaceutical Industry?Pharmaceutical Industry?

Using Information to Using Information to Categorize CustomersCategorize Customers

• Coding (how to handle)Coding (how to handle)• Routing (call centers)Routing (call centers)• Targeting (hidden Targeting (hidden

discounts) discounts) • Sharing (source of Sharing (source of

revenue)revenue)

Stages in Service Firm Stages in Service Firm CompetitivenessCompetitiveness

1.1. Available for ServiceAvailable for Service

2.2. JourneymanJourneyman

3.3. Distinctive Competence Distinctive Competence AchievedAchieved

4.4. World-Class Service DeliveryWorld-Class Service Delivery

Stages in Service Firm Stages in Service Firm CompetitivenessCompetitiveness

Stages in Service Firm Stages in Service Firm CompetitivenessCompetitiveness

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

deliverydelivery 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 Stages in Service Firm CompetitivenessCompetitiveness

Stages in Service Firm Stages in Service Firm CompetitivenessCompetitiveness

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

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.