This document outlines learning objectives and content for a service strategy course. It covers formulating a strategic service vision, analyzing a firm's competitive environment and strategies, examining customer purchase decisions and the role of information in services. Key topics discussed include segmenting customer markets, developing service concepts, crafting operating strategies, designing delivery systems, and categorizing firms by competitiveness stage. The document provides guidance on strategic vision components and discusses generic competitive strategies, information uses, virtual value chains, and limits to information use. Discussion topics posed at the end relate examples of strategy combinations, ethical issues in micro-marketing, most powerful information uses, examples of sustained world-class firms, and whether top firms can be considered learning organizations.

1. Service Strategy

2. Learning Objectives
Formulate a strategic service vision.
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 in services.
Explain the role of the virtual value chain in service
innovation.
Discuss the limits in the use of information.
Categorize a service firm according to its stage ofCategorize a service firm according to its stage of
competitiveness.competitiveness.
Conduct a data envelopment analysis (DEA).Conduct a data envelopment analysis (DEA).

3. Strategic Service Vision
Target Market Segments
What are common characteristics of important marketWhat are common characteristics of important market
segments?segments?
What dimensions can be used to segment the market,What dimensions can be used to segment the market,
demographic, psychographic?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 manner,How well are these needs being served, in what manner,
by whom?by whom?

4. Strategic Service Vision
Service Concept
What are important elements of the service to be provided,What are important elements of the service to be provided,
stated in terms of results produced for customers?stated in terms of results produced for customers?
How are these elements supposed to be perceived by theHow are these elements supposed to be perceived by the
target market segment, by the market in general, bytarget market segment, by the market in general, by
employees, by others?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 manner inWhat efforts does this suggest in terms of the manner in
which the service is designed, delivered, marketed?which the service is designed, delivered, marketed?

5. Strategic Service Vision
Operating Strategy
What are important elements of the strategy: operations,What are important elements of the strategy: operations,
financing, marketing, organization, human resources,financing, marketing, organization, human resources,
control?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: measures,How will quality and cost be controlled: measures,
incentives, rewards?incentives, rewards?
What results will be expected versus competition in termsWhat results will be expected versus competition in terms
of, quality of service, cost profile, productivity,of, quality of service, cost profile, productivity,
morale/loyalty of servers?morale/loyalty of servers?

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

7. Competitive Environment of Services
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 SuppliersNo Power Dealing with Buyers or Suppliers
Product Substitutions for ServiceProduct Substitutions for Service
High Customer LoyaltyHigh Customer Loyalty
Exit BarriersExit Barriers

8. Competitive Service Strategies
(Overall Cost Leadership)
Seeking Out Low-cost CustomersSeeking Out Low-cost Customers
Standardizing a Custom ServiceStandardizing a Custom Service
Reducing the Personal Element in ServiceReducing the Personal Element in Service
Delivery (promote self-service)Delivery (promote self-service)
Reducing Network Costs (hub and spoke)Reducing Network Costs (hub and spoke)
Taking Service Operations Off-lineTaking Service Operations Off-line

9. Competitive Service Strategies
(Differentiation)
Making the Intangible Tangible (memorable)Making the Intangible Tangible (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.

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

11. 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)

12. Service Purchase Decision
Service QualifierService Qualifier: To be taken seriously a: To be taken seriously a
certain level must be attained on thecertain level must be attained on the
competitive dimension, as defined by othercompetitive dimension, as defined by other
market players.market players. ExamplesExamples are cleanlinessare cleanliness
for a fast food restaurant or safe aircraft forfor a fast food restaurant or safe aircraft for
an airline.an airline.
Service WinnerService Winner: The competitive: The competitive
dimension used to make the final choicedimension used to make the final choice
among competitors.among competitors. ExampleExample is price.is price.

13. Service Purchase Decision (cont.)
Service LoserService Loser: Failure to deliver at or: Failure to deliver at or
above the expected level for a competitiveabove the expected level for a competitive
dimension.dimension. ExamplesExamples are failure to repairare failure to repair
auto (dependability), rude treatmentauto (dependability), rude treatment
(personalization) or late delivery of package(personalization) or late delivery of package
(speed).(speed).

14. Competitive Role of Information
in Services
Strategic Focus Competitive Use of InformationStrategic 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 services(Customer) Frequent user club Development of services
Switching costs Micro-marketingSwitching costs Micro-marketing
Revenue generation: Productivity enhancement:Revenue generation: Productivity 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)

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

16. Limits in the Use of Information
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)

17. Using Information to Categorize Customers
CodingCoding grades customers on how profitable theirgrades customers on how profitable their
business is.business is.
RoutingRouting is used by call centers to place customersis used by call centers to place customers
in different queues based on customer code.in different queues based on customer code.
TargetingTargeting allows choice customers to have feesallows choice customers to have fees
waived and get other hidden discounts.waived and get other hidden discounts.
SharingSharing data about your transaction history withdata about your transaction history with
other firms is a source of revenue.other firms is a source of revenue.

18. Stages in Service Firm Competitiveness
1. Available for service 2. Journeyman 3. Distinctive competence 4. World-class service delivery1. Available for service 2. Journeyman 3. Distinctive competence 4. World-class service delivery
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 expectationscustomer expectations delightsdelights them and thereby expandsthem 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 theat 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.

19. Stages in Service Firm Competitiveness
1. Available for service 2. Journeyman 3. Distinctive competence 4. World-class service delivery1. Available for service 2. Journeyman 3. Distinctive competence 4. World-class service delivery
BACK OFFICEBACK OFFICE
Counting 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.
CUSTOMERCUSTOMER
Unspecified, 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 TECHNOLOGY
When 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.
WORKFORCEWORKFORCE
Negative 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 MANAGEMENT
Controls 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. Mentorsand facilitates workers. as a source of new ideas. Mentors
works to enhance their career.works to enhance their career.

20. America West Airlines Strategy
TargetTarget Strategic AdvantageStrategic Advantage
Low cost UniquenessLow cost Uniqueness
Entire Overall cost DifferentiationEntire Overall cost Differentiation
Market leadershipMarket leadership
Market FocusMarket Focus
SegmentSegment

21. America West Winning Customers
Service Qualifiers:Service Qualifiers:
Service Winners:Service Winners:
Service Losers:Service Losers:

22. America West Strategic Service Vision
Target market segmentsTarget market segments
Service conceptService concept
Operating strategyOperating strategy
Service delivery systemService delivery system

23. America West Airlines Positioning
CABIN SERVICECABIN SERVICE
Full ServiceFull Service
PREFLIGHT SERVICEPREFLIGHT SERVICE
Inconvenient ConvenientInconvenient Convenient
No AmenitiesNo Amenities

24. Mrs. Fields Strategic Use of Information
Strategic Focus Competitive Use of InformationStrategic 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:
ExternalExternal
(Customer)(Customer)
Revenue generation: Productivity enhancement:Revenue generation: Productivity enhancement:
InternalInternal
(Operations)(Operations)

25. Mrs. Fields Management Information System
How might the management informationHow might the management information
system contribute to a reported 100%system contribute to a reported 100%
turnover of store managers?turnover of store managers?
Will the management information systemWill the management information system
support or inhibit the expansion of Mrs.support or inhibit the expansion of Mrs.
Field’s outlets? Why?Field’s outlets? Why?

26. Alamo Drafthouse Positioning
MOVIE SELECTIONMOVIE SELECTION
FOOD QUALITYFOOD QUALITY
ManyManyFewFew
PoorPoor
GoodGood

27. Alamo Drafthouse Strategic Service Vision
Target market segmentsTarget market segments
Service conceptService concept
Operating strategyOperating strategy
Service delivery systemService delivery system

28. Alamo Drafthouse Winning Customers
QualifiersQualifiers
Service winnersService winners
Service losersService losers

29. Alamo Drafthouse Profitability Recommendations

30. Discussion Topics
1.1. Give examples of service firms that use both the strategyGive examples of service firms that use both the strategy
of focus and differentiation and the strategy of focus andof focus and differentiation and the strategy of focus and
overall cost leadership.overall cost leadership.
2.2. What ethical issues are associated with micro-marketing?What ethical issues are associated with micro-marketing?
3.3. For each of the three generic strategies (i.e., costFor each of the three generic strategies (i.e., cost
leadership, differentiation, and focus) which of the fourleadership, differentiation, and focus) which of the four
competitive uses of information is most powerful?competitive uses of information is most powerful?
4.4. Give an example of a firm that begin as world-class andGive an example of a firm that begin as world-class and
has remained in that category.has remained in that category.
5.5. Could firms in the “world-class service delivery” stage ofCould firms in the “world-class service delivery” stage of
competitiveness be descried as “learning organizations”?competitiveness be descried as “learning organizations”?

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