Service Strategy


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Service Strategy

  1. 1. Service Strategy
  2. 2. Learning Objectives <ul><li>Formulate a strategic service vision. </li></ul><ul><li>Discuss the competitive environment of services. </li></ul><ul><li>Describe how a service competes using the three generic service strategies. </li></ul><ul><li>Discuss the service purchase decision. </li></ul><ul><li>Discuss the competitive role of information in services. </li></ul><ul><li>Explain the role of the virtual value chain in service innovation. </li></ul><ul><li>Discuss the limits in the use of information. </li></ul><ul><li>Categorize a service firm according to its stage of competitiveness. </li></ul><ul><li>Conduct a data envelopment analysis (DEA). </li></ul>
  3. 3. Strategic Service Vision Target Market Segments <ul><li>What are common characteristics of important market segments? </li></ul><ul><li>What dimensions can be used to segment the market, demographic, psychographic? </li></ul><ul><li>How important are various segments? </li></ul><ul><li>What needs does each have? </li></ul><ul><li>How well are these needs being served, in what manner, by whom? </li></ul>
  4. 4. Strategic Service Vision Service Concept <ul><li>What are important elements of the service to be provided, stated in terms of results produced for customers? </li></ul><ul><li>How are these elements supposed to be perceived by the target market segment, by the market in general, by employees, by others? </li></ul><ul><li>How do customers perceive the service concept? </li></ul><ul><li>What efforts does this suggest in terms of the manner in which the service is designed, delivered, marketed? </li></ul>
  5. 5. Strategic Service Vision Operating Strategy <ul><li>What are important elements of the strategy: operations, financing, marketing, organization, human resources, control? </li></ul><ul><li>On which will the most effort be concentrated? </li></ul><ul><li>Where will investments be made? </li></ul><ul><li>How will quality and cost be controlled: measures, incentives, rewards? </li></ul><ul><li>What results will be expected versus competition in terms of, quality of service, cost profile, productivity, morale/loyalty of servers? </li></ul>
  6. 6. Strategic Service Vision Service Delivery System <ul><li>What are important features of the service delivery system including: role of people, technology, equipment, layout, procedures? </li></ul><ul><li>What capacity does it provide, normally, at peak levels? </li></ul><ul><li>To what extent does it, help insure quality standards, differentiate the service from competition, provide barriers to entry by competitors? </li></ul>
  7. 7. Competitive Environment of Services <ul><li>Relatively Low Overall Entry Barriers </li></ul><ul><li>Economies of Scale Limited </li></ul><ul><li>High Transportation Costs </li></ul><ul><li>Erratic Sales Fluctuations </li></ul><ul><li>No Power Dealing with Buyers or Suppliers </li></ul><ul><li>Product Substitutions for Service </li></ul><ul><li>High Customer Loyalty </li></ul><ul><li>Exit Barriers </li></ul>
  8. 8. Competitive Service Strategies (Overall Cost Leadership) <ul><li>Seeking Out Low-cost Customers </li></ul><ul><li>Standardizing a Custom Service </li></ul><ul><li>Reducing the Personal Element in Service Delivery (promote self-service) </li></ul><ul><li>Reducing Network Costs (hub and spoke) </li></ul><ul><li>Taking Service Operations Off-line </li></ul>
  9. 9. Competitive Service Strategies (Differentiation) <ul><li>Making the Intangible Tangible (memorable) </li></ul><ul><li>Customizing the Standard Product </li></ul><ul><li>Reducing Perceived Risk </li></ul><ul><li>Giving Attention to Personnel Training </li></ul><ul><li>Controlling Quality Note : Differentiation in service means being unique in brand image, technology use, features, or reputation for customer service. </li></ul>
  10. 10. Competitive Service Strategies (Focus) <ul><li>Buyer Group: (e.g. USAA insurance and military officers) </li></ul><ul><li>Service Offered: (e.g. Shouldice Hospital and hernia patients) </li></ul><ul><li>Geographic Region: (e.g. Austin Cable Vision and TV watchers) </li></ul>
  11. 11. Customer Criteria for Selecting a Service Provider <ul><li>Availability (24 hour ATM) </li></ul><ul><li>Convenience (Site location) </li></ul><ul><li>Dependability (On-time performance) </li></ul><ul><li>Personalization (Know customer’s name) </li></ul><ul><li>Price (Quality surrogate) </li></ul><ul><li>Quality (Perceptions important) </li></ul><ul><li>Reputation (Word-of-mouth) </li></ul><ul><li>Safety (Customer well-being) </li></ul><ul><li>Speed (Avoid excessive waiting) </li></ul>
  12. 12. Service Purchase Decision <ul><li>Service 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. </li></ul><ul><li>Service Winner : The competitive dimension used to make the final choice among competitors. Example is price. </li></ul>
  13. 13. Service Purchase Decision (cont.) <ul><li>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). </li></ul>
  14. 14. Competitive Role of Information in Services <ul><li>Strategic Focus Competitive Use of Information </li></ul><ul><li>On-line Off-line </li></ul><ul><li>(Real time) (Analysis) </li></ul><ul><li>Creation of barriers to entry: Data base asset: </li></ul><ul><li>External Reservation system Selling information </li></ul><ul><li>(Customer) Frequent user club Development of services </li></ul><ul><li>Switching costs Micro-marketing </li></ul><ul><li>Revenue generation: Productivity enhancement: </li></ul><ul><li>Internal Yield management Inventory status </li></ul><ul><li>(Operations) Point of sale Data envelopment </li></ul><ul><li>Expert systems analysis (DEA) </li></ul>
  15. 15. The Virtual Value Chain <ul><li>Market place vs Market space </li></ul><ul><li>Creating New Markets Using Information (Gather, Organize, Select, Synthesize, and Distribute) </li></ul><ul><li>Three Stage Evolution • 1st Stage (Visibility): See physical operations more effectively with information – Ex. USAA “paperless operation” • 2 nd Stage (Mirroring Capability): Substitute virtual activities for physical – Ex. USAA “automate underwriting” • 3 rd Stage (New Customer Relationships): Draw on information to deliver value to customer in new ways – Ex. USAA “event oriented service” </li></ul>
  16. 16. Limits in the Use of Information <ul><li>Anti-competitive (Barrier to entry) </li></ul><ul><li>Fairness (Yield management) </li></ul><ul><li>Invasion of Privacy (Micro-marketing) </li></ul><ul><li>Data Security (Medical records) </li></ul><ul><li>Reliability (Credit report) </li></ul>
  17. 17. Using Information to Categorize Customers <ul><li>Coding grades customers on how profitable their business is. </li></ul><ul><li>Routing is used by call centers to place customers in different queues based on customer code. </li></ul><ul><li>Targeting allows choice customers to have fees waived and get other hidden discounts. </li></ul><ul><li>Sharing data about your transaction history with other firms is a source of revenue. </li></ul>
  18. 18. Stages in Service Firm Competitiveness <ul><li>1. Available for service 2. Journeyman 3. Distinctive competence 4. World-class service delivery </li></ul><ul><li>Customers patronize service Customers neither seek Customers seek out the firm The company’s name is synonymous </li></ul><ul><li>firm for reasons other than out nor avoid the firm. on the basis of its sustained with service excellence. Its service </li></ul><ul><li>performance. reputation for meeting doesn’t just satisfy customers; it </li></ul><ul><li>customer expectations delights them and thereby expands </li></ul><ul><li>customer expectations to levels its </li></ul><ul><li>competitors are unable to fulfill. </li></ul><ul><li>Operations is reactive, Operations functions in a Operations continually excels, Operations is a quick learner and fast </li></ul><ul><li>at best. mediocre, uninspired reinforced by personnel innovator; it masters every step of the </li></ul><ul><li>fashion. management and systems service delivery process and provides </li></ul><ul><li>that support an intense capabilities that are superior to </li></ul><ul><li>customer focus. competitors. </li></ul><ul><li>SERVICE QUALITY </li></ul><ul><li>Is subsidiary to cost, Meets some customer Exceeds customer Raises customer expectations and </li></ul><ul><li>highly variable. expectations; consistent expectations; consistent seeks challenge; improves </li></ul><ul><li>on one or two key on multiple dimensions. continuously. </li></ul><ul><li>dimensions. </li></ul>
  19. 19. Stages in Service Firm Competitiveness <ul><li>1. Available for service 2. Journeyman 3. Distinctive competence 4. World-class service delivery </li></ul><ul><li>BACK OFFICE </li></ul><ul><li>Counting room. Contributes to service, plays Is equally valued with front Is proactive, develops its own </li></ul><ul><li>an important role in the total office; plays integral role. capabilities, and generates </li></ul><ul><li>service, is given attention, opportunities. </li></ul><ul><li> but is still a separate role. </li></ul><ul><li>CUSTOMER </li></ul><ul><li>Unspecified, to be A market segment whose A collection of individuals A source of stimulation, ideas, </li></ul><ul><li>satisfied at minimum cost. basic needs are understood. whose variation in needs is and opportunity. </li></ul><ul><li>understood. </li></ul><ul><li>INTRODUCTION OF NEW TECHNOLOGY </li></ul><ul><li>When necessary for When justified by cost When promises to enhance Source of first-mover advantages, </li></ul><ul><li>survival, under duress. savings. service. creating ability to do things your </li></ul><ul><li> competitors can’t do. </li></ul><ul><li>WORKFORCE </li></ul><ul><li>Negative constraint. Efficient resource; disciplined; Permitted to select among Innovative; creates procedures. </li></ul><ul><li>follows procedures. alternative procedures. </li></ul><ul><li>FRONT-LINE MANAGEMENT </li></ul><ul><li>Controls workers. Controls the process. Listens to customers; coaches Is listened to by top management </li></ul><ul><li> and facilitates workers. as a source of new ideas. Mentors works to enhance their career. </li></ul>
  20. 20. America West Airlines Strategy <ul><li>Target Strategic Advantage </li></ul><ul><li>Low cost Uniqueness </li></ul><ul><li>Entire Overall cost Differentiation </li></ul><ul><li>Market leadership </li></ul><ul><li>Market Focus </li></ul><ul><li>Segment </li></ul>
  21. 21. America West Winning Customers <ul><li>Service Qualifiers: </li></ul><ul><li>Service Winners: </li></ul><ul><li>Service Losers: </li></ul>
  22. 22. America West Strategic Service Vision <ul><li>Target market segments </li></ul><ul><li>Service concept </li></ul><ul><li>Operating strategy </li></ul><ul><li>Service delivery system </li></ul>
  23. 23. America West Airlines Positioning <ul><li>CABIN SERVICE </li></ul><ul><li>Full Service </li></ul><ul><li>PREFLIGHT SERVICE </li></ul><ul><li>Inconvenient Convenient </li></ul><ul><li>No Amenities </li></ul>
  24. 24. Mrs. Fields Strategic Use of Information <ul><li>Strategic Focus Competitive Use of Information </li></ul><ul><li>On-line Off-line </li></ul><ul><li>(Real time) (Analysis) </li></ul><ul><li>Creation of barriers to entry: Data base asset: </li></ul><ul><li>External </li></ul><ul><li>(Customer) </li></ul><ul><li>Revenue generation: Productivity enhancement: </li></ul><ul><li>Internal </li></ul><ul><li>(Operations) </li></ul>
  25. 25. Mrs. Fields Management Information System <ul><li>How might the management information system contribute to a reported 100% turnover of store managers? </li></ul><ul><li>Will the management information system support or inhibit the expansion of Mrs. Field’s outlets? Why? </li></ul>
  26. 26. Alamo Drafthouse Positioning MOVIE SELECTION FOOD QUALITY Many Few Poor Good
  27. 27. Alamo Drafthouse Strategic Service Vision <ul><li>Target market segments </li></ul><ul><li>Service concept </li></ul><ul><li>Operating strategy </li></ul><ul><li>Service delivery system </li></ul>
  28. 28. Alamo Drafthouse Winning Customers <ul><li>Qualifiers </li></ul><ul><li>Service winners </li></ul><ul><li>Service losers </li></ul>
  29. 29. Alamo Drafthouse Profitability Recommendations
  30. 30. Discussion Topics <ul><li>Give examples of service firms that use both the strategy of focus and differentiation and the strategy of focus and overall cost leadership. </li></ul><ul><li>What ethical issues are associated with micro-marketing? </li></ul><ul><li>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? </li></ul><ul><li>Give an example of a firm that begin as world-class and has remained in that category. </li></ul><ul><li>Could firms in the “world-class service delivery” stage of competitiveness be descried as “learning organizations”? </li></ul>
  31. 31. Interactive Class Exercise <ul><li>The class divides and debates the proposition “Frequent flyer award programs are or are not anticompetitive.” </li></ul>