Service Strategy

Week 2

Learning Objectives
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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 Vision
Target Market Segments

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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?

by the market in general.Strategic Service Vision Service Concepts     What are important elements of the service to be provided. 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? . by employees. stated in terms of results produced for customers? How are these elements supposed to be perceived by the target market segment.

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

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


Southwest example .

site characteristics) 4. layout) 3.Service encounter (culture.Managing capacity and demand (queues) 8.Facility design (aesthetics. empowerment) 6.Quality (measurement.Delivery system (front & back office) 2.Information (data collection.Service Design Elements  Structural: 1.Capacity planning (number of servers)  Managerial 5.Location (competition. resource) . guarantee) 7.

Its success is measured by the recurrence rate.Shouldice Hospital example  A successful hospital located in Toronto. is privately owned and uses a special operating procedure to correct inguinal hernias that has resulted in an excellent reputation. that perform only inguinal hernia operations. Canada. . which is 12 times lower than that of its competitors.

Shouldice Hospital example .

Shouldice Hospital example .

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 .

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 .

. features. technology use.Competitive Service Strategies (Differentiation)      Making the Intangible Tangible (memorable) Customizing the Standard Product Reducing Perceived Risk Giving Attention to Personnel Training Controlling Quality Note: Differentiation in service means being unique in brand image. or reputation for customer service.

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

Market Position of Generic Strategies Strategic Advantage Low Cost Uniqueness Entire Market Overall Cost Leadership Differentiation Target Market Segment Focus .

Customer 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) .

Example is price.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. . Service Winner: The competitive dimension used to make the final choice among competitors. Examples are cleanliness for a fast food restaurant or safe aircraft for an airline.

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

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

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

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)     .

America West Airlines Generic Competitive Strategy
Strategic Advantage Low Cost Uniqueness

Entire Market

Overall Cost Leadership


Market Segment


America West Airlines Competitive Features  Service Qualifiers:  Service Winners:  Service Losers: .

America West Airlines Service Concept  Strategic Delivery System: Location: Facility Design: Capacity Planning    .

America West Airlines Strategic Service Concept (cont.)  Service Encounter: Quality: Managing Capacity and Demand: Information:    .

America West Airlines Positioning CABIN SERVICE Full Service PREFLIGHT SERVICE Inconvenient Convenient No Amenities .



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

Mrs. Fields Management Information System  Advantages  Disadvantages .

Fields Questions  How might the MIS contribute to a reported 100% turnover of store managers? Will the MIS support or inhibit the growth of outlets (domestic and overseas)?  .Mrs.



Alamo Drafthouse Positioning FOOD QUALITY Good MOVIE SELECTION Few Many Poor .

Alamo Drafthouse Strategic Service Vision  Target market segments Service concept Operating strategy Service delivery system    .

Alamo Drafthouse Winning Customers  Qualifiers Service winners Service losers   .

Alamo Drafthouse Profitability Recommendations     .

Discussion Topics     Give 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.e.. and focus) which of the four competitive uses of information is most powerful? . What ethical issues are associated with micro-marketing? For each of the three generic strategies (i. cost leadership. differentiation.

Interactive Class Exercise  The class divides and debates the proposition “Frequent flyer award programs are or are not anticompetitive.” .

New Service Development and Process Design .

Discuss the managerial issues associated with the adoption of new technology. Use the taxonomy of service processes to classify a service operation. Compare and contrast the generic approaches to service system design. Describe a service process using the dimensions of divergence and complexity.Learning Objectives        Discuss the new service development process. . Prepare a blueprint for a service operation. Place an example of service automation in it proper category.

Customer Benefit Package Hierarchy Level Category First Second Element Business Core Peripheral Good Peripheral Service Third Variant Core Good Example Custom clothier Business suits Garment bag Core Service Example Business hotel Room for the night Bath robe Deferred payment plans Coffee lounge In house restaurant Airport shuttle .

g.Levels of Service Innovation Radical Innovations    Major Innovation: new service driven by information and computer based technology Start-up Business: new service for existing market New Services for the Market Presently Served: new services to customers of an organization Incremental Innovations    Service Line Extensions: augmentation of existing service line (e. new menu items) Service Improvements: changes in features of currently offered service Style Changes: modest visible changes in appearances .

New Service Development Cycle • Full-scale launch • Post-launch review Full Launch ga n Co izatio nte na l xt Enablers Development • Formulation of new services objective / strategy • Idea generation and screening • Concept development and testing • Service design and testing • Process and system design and testing • Marketing program design and testing • Personnel training • Service testing and pilot run • Test marketing People am Te s Or Product Technology Tools Systems Design Analysis • Business analysis • Project authorization .

International flights with jet aircraft Physical design .Astroturf Methods .Technology Driven Service Innovation      Power/energy .JIT and TQM Information .E-commerce using the Internet .Enclosed sports stadiums Materials .

animation Intelligent (I) .ATM Playback (P) .medical diagnosis Totally automated system (T) .answering machine Numerical controlled (N) .autopilot Expert system (E) .Classification of Service Automation        Fixed-sequence (F) .EFT .parking lot gate Variable-sequence (V) .

Adoption of New Technology in Services   Challenges of Adopting New Technology The Process is the Product Back Office vs Front Office Changes Need for Standardization Managing the New Technology Adoption Process Ten step process with concern for employees and customers .

Ten Step Planning Guide 1. 2. . 3. 5. Orientation and education Technology opportunity analysis Application requirements analysis Functional specification Design specification. 4.

10. 8.Ten Step Planning Guide 6. Implementation planning Equipment selection and contract commitments Implementation Testing of technology Review of results . 7. 9.

.Service Blueprinting   Developing a new service based on the subjective ideas in the service concept can lead to costly trial-and-error efforts to make the concept a real thing. The service delivery system can be captured in a visual diagram. as in the case of buildings.

Service Blueprint of Luxury Hotel .

It also facilitates problem solving and creative thinking by identifying potential points of failure and highlighting opportunities to enhance customers’ perceptions of the service.Service Blueprinting   A blueprint is a precise definition of the service delivery system that allows management to test the service concept on paper before any final commitments are made. .

. For example the activities of an attorney contrasted with those of a paralegal.Strategic Positioning Through Process Structure   Degree of Complexity: Measured by the number of steps in the service blueprint. For example a clinic is less complex than a general hospital. Degree of Divergence: Amount of discretion permitted the server to customize the service.

Structural Positioning of Financial Services Complexity High Investment banking Discount brokerage Financial planner Divergence Low (Standardized) Life insurance Real state High (Customized) Low .

Prepare Sauces at Table Expand to 12 Choices Add Exotic Coffees. Hand Grind Pepper Choice of Payment. Serve Mints . Milk only Serve Salad & Entree Together: Bill and Beverage Together Cash only: Pay when Leaving CURRENT PROCESS TAKE RESERVATION SEAT GUESTS. Sherbet between Courses.Structural Alternatives for a Restaurant LOWER COMPLEXITY/DIVERGENCE No Reservations Self-seating. Bone Fish at Table. Taken Personally by Maltre d’ Individually Prepared at table Expand to 20 Choices: Add Flaming Dishes. Including House Accounts. Tea. Menu on Blackboard Eliminate Customer Fills Out Form Pre-prepared: No Choice Limit to Four Choices Sundae Bar: Self-service Coffee. GIVE MENUS SERVE WATER AND BREAD TAKE ORDERS PREPARE ORDERS Salad (4 choices) Entree (15 choices) Dessert (6 choices) Beverage (6 choices) SERVE ORDERS COLLECT PAYMENT HIGHER COMPLEXITY/DIVERGENCE Specific Table Selection Recite Menu: Describe Entrees & Specials Assortment of Hot Breads and Hors D’oeuvres At table.


Generic Approaches to Service Design     Production-line • Limit Discretion of Personnel • Division of Labor • Substitute Technology for People • Standardize the Service Customer as Coproducer • Substitution of Customer Labor for Provider • Smoothing Service Demand Customer Contact • Degree of Customer Contact • Separation of High and Low Contact Operations Information Empowerment • Employee and Customer .

.Discussion Questions     What ethical issues are raised in the promotion of sales during a service transaction? What are some drawbacks of customer participation in the service delivery process? What are the limits in the production-line approach to service? Give an example of a service in which isolation of the technical core would be inappropriate.

.100 Yen Sushi House Questions     Prepare a service blueprint for the 100 Yen Sushi House What features differentiate 100 Yen Sushi House and how do they create a competitive advantage? How has the 100 Yen Sushi House incorporated the just-in-time system into its operations? Suggest other services that could adopt the 100 Yen Sushi House service delivery concept.


100 Yen Sushi House Service Package    Supporting Facility Facilitating Goods Information Explicit Service Implicit Service   .

INTERACTIVE CLASS EXERCISE The class breaks into small groups and prepares a service blueprint for Village Volvo. .

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