SERVICE STRATEGY

The Strategic Service Vision

A strategic service vision is formulated by addressing questions about the target market, service
concept, operating strategy, and delivery system.
Understanding the Competitive Environment of Services
In general, service firms compete in a difficult economic environment, and there are many
reasons for this difficulty:
 Relatively low overall entry barriers. Service innovations are not patentable, and in
most cases, services are not capital-intensive. Thus, innovations can easily be copied by
competitors. However, other types of entry barriers exist, such as locating a resort hotel
on the best beach of an island.
 Minimal opportunities for economies of scale. The necessity of physical travel for
many services limits the market area and results in small-scale outlets.
 Erratic sales fluctuations. Service demand varies as a function of the time of day and
the day of the week (and sometimes seasonally), with random arrivals.
 No advantage of size in dealing with buyers or suppliers. The small size of many
service firms places them at a disadvantage in bargaining with powerful buyers or
suppliers. Many exceptions should come to mind, however, such as McDonald’s buying
beef and Marriott’s buying mattresses.
 Product substitution. Product innovations can be a substitute for services (e.g., the home
pregnancy test). Thus, service firms must not only watch other service competitors but
also anticipate potential product innovations that might make their services obsolete.
 Customer loyalty. Established firms using personalized service create a loyal customer
base, which becomes a barrier to entry by new services.
 Exit barriers. Marginal service firms may continue to operate despite low, or even
nonexistent, profits. For example, a privately held firm may have employment of family
members rather than maximizing profit as its goal.
Strategic Analysis
Two popular planning tools include:
(1) Porter’s five forces analysis of the target industry structure and
(2) a SWOT analysis to assess the organization’s strengths, weaknesses, opportunities, and
threats in a market.
Porter’s Five Forces Analysis
The five forces model is used at the industry level (e.g., airlines) to determine the competitive
intensity and, therefore, attractiveness of a market. The five forces affect the ability of a firm to
attract customers and make a profit.
  Competitive Rivalry within Industry. Often this factor is the major determinant of
industry competitiveness. Rivals might be aggressive price competitors or they might use
nonprice strategies such as innovation, branding, or superior quality.
 Potential New Entrants. Profitable markets that yield high returns invite new
competitors.
 Threat of Substitutes. For services, substitutes often take the form of a product.
 Bargaining Power of Suppliers. Suppliers of inputs can be a source of power over the
firm because of product uniqueness or monopoly source.
 Bargaining Power of Customers. Customers might be able to exert price pressure and,
thus, restrict high margins.
SWOT Analysis: Strengths, Weaknesses, Opportunities, Threats
A SWOT analysis identifies an organization’s internal strength and weakness as well as threats
and opportunities in the external environment. The aim of the analysis is to reveal competitive
advantages, analyze prospects, prepare for problems, and allow for development of contingency
plans.
Activity
SWOT Analysis of your own Service Business
Using the business that you have proposed (in the business plan and promotional video activity),
prepare a SWOT Analysis Matrix.
Be creative in making your own format as you are not restricted to use a specific format.
[Sample SWOT Analysis]
Name of Business: ABC Content Writing Services