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Service Strategy

Learning Objectives

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

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?

Strategic Service Vision

Service Concepts
What 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 Vision

Operating Strategy

What 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 Vision

Service Delivery System

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 Elements


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

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

Staying Focused
Crotts, Dickson and Ford, Aligning Organizational Processes with Mission: The case of service Excellence, Academy of Management Executive, 2005 19:3.

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 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.)

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 Services


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


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

Competitive Service Strategies Differentiation


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, technology use, features, or reputation for customer service.

Competitive Service Strategies Focus


Group: (e.g. USAA insurance and military officers) Offered: (e.g. Shouldice Hospital and hernia patients)



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

Customer Criteria for Selecting a Service Provider


Dependability Personalization

Quality Reputation


(24 hour ATM) (Site location) (On-time performance) (Know customers name) (Quality surrogate) (Perceptions important) (Word-of-mouth) (Customer well-being) (Avoid excessive waiting)

Service Purchase Decision


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.

Qualifier: To be taken seriously a


used to make the final choice among competitors.

Example is price.

Winner: The competitive dimension

Service Purchase Decision (cont.)


the expected level for a competitive dimension.

Loser: Failure to deliver at or above

Examples are failure to repair auto (dependability), rude treatment (personalization) or late delivery of package (speed).

Competitive Role of Information in Services

Competitive use of Information
Online (Real time)
Creation of barriers to entry:
Reservation system Frequent user club Switching costs

Offline (Analysis)
Database asset:
Selling information Development of services Micromarketing

External (Customer)

Revenue generation:

Productivity enhancement:
Inventory Status Data envelopment analysis (DEA)

Internal (Operations)

Yield management Point of sales Expert systems

The Virtual Value Chain


vs Marketspace Creating 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 Information

Anti-competitive Fairness Invasion

(Barrier to entry)

(Yield management) of Privacy (Micro-marketing)


Security (Medical records)

(Credit report)


America West Airlines Strategy

Target Strategic Advantage Low cost Entire Market Market Segment Overall cost leadership Uniqueness Differentiation


America West Winning Customers







America West Strategic Service Vision

Target Service

market segments concept strategy

Operating Service

delivery system

America West Airlines Positioning





No Amenities

Alamo Drafthouse Positioning







Alamo Drafthouse Strategic Service Vision

Target Service

market segments concept strategy

Operating Service

delivery system

Alamo Drafthouse Winning Customers

Qualifiers Service Service

winners 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. 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 Exercise


into two groups and debate the following proposition:

Frequent flyer award programs are or are not anticompetitive