designing for services course service business and ...€¦ · designing for services course...
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Designing for services course
Service Business and business models –
lessons learned from the theory and praxis
Lasse Mitronen
February, 7th 2018
7.2.2018
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7.2.2018
Lasse Mitronen
• Professor (Professor of Practice) Aalto University, School of Business
• 24 years experience in different positions for KeskoCorporation, the leading retailing company in Finland and Nordic countries, positions for examples:– Concept and development Manager for non food stores– VP Business Planning and Strategic Development
• Some professional affiliations in service business, for example:– Chairman for the steering group leader for Tekes, Serve
program 2007-2013– Steering group member of the Finpro global service business
program and service advisor for Finpro world best studying and working environments project 2009-2014
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Thinking and sleeping at the
same time
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7.2.2018
What is marketing?
”Marketing is an organizational function and a set of
processes for creating, communicating, and delivering
value to customers and for managing customer
relationships in ways that benefit the organization and its
stakeholders (AMA definition of marketing 2004)”
”Marketing is the activity, set of institutions, and processes for creating, communicating, delivering, and
exchanging offerings that have value for customers, clients, partners, society at large”
(AMA definition of marketing 2007)
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7.2.2018
Towards a paradigm shift in marketing
Vargo & Lusch 2008
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Evolution of marketing
• 4P - Product- Price, - Place - Promotion
• customer as passivetarget
• Logistics• Channels• Distribution• Products to market
• Value co-creation• Customer value
proposition• Service• Relationship• Customer as active
participant
Lusch, R.F. (2007) Marketing’s Evolving Identity: Defining Our Future. Journal of Public Policy & Marketing. Vol. 26(2), pp. 261–268
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Defining service (old school)
• For decades, service was seen through functions and outputs (e.g.,
acts, deeds and performances, Berry, 1980), the characteristics of
which were described with IHIP-mallin model(Zeithaml,
Parasuraman, Berry, 1985)
– Intangibility = immaterial, can not touch
– Heterogenous = can not standardize
– Inseparability = Simultaneous production and consumption/use
– Perishability = can not be stored
• Based on the idea that products are fundamentally different from
services
• Why should they be different? Often they are not!
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How service is defined in the 21st centuryService is the application
of operant resources
(knowledge and skills) on
behalf of another party1
Service is cocreation of
value between the
customer and the
provider2
Service is support to
another party’s everyday
practices in a way that
enables value creation in
those practices3
1Vargo, S.L., Lusch, R.F. (2004), ”Evolving to a new dominant logic for marketing,” Journal of Marketing, Vol.
68(1), 1-17. 2Hsu, C. & Spohrer, J. (2009): Improving service quality and productivity: exploring the digital connections scaling
model. International Journal of Services Technology and Management.3Grönroos, Christian (2009): Towards service logic: The unique contribution of value co-creation” Hanken
Working papers
Competive advantage fromknowledge and skills
Competitive advantage fromredifining participant and IT roles
Competitive advantage fromfacilitating customer’s own value
creation
Service is
about creating
customers
value from the
perspective of
buying and
using
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However, Disciplines Still Debate Definition of Service
Economics & Law
Game Theory
Management
Information
Science
Anthropology
& Psychology
Organization
Theory
Computer Science/
Artificial Intelligence
Information
Science
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7.2.2018
Strategic
management level
Fit or tension in service business?
Customer
using level Customer
serving level
Operational
management level
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Summary: from product and old service
orientation to new service orientation
• From customers as passive targets to customers as active participants
• From selling products or services to delivering solutions
• From product and service features to customer benefits
• From managing one organization to managing networksof organizations
• From one channel to multiple channels
• From investments in logistics to investments in information and digital solutions as an offering
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Perspectives to value
• Low price
• I can get what I want
• Quality compared to what I pay
• What I get vs. what I give
Zeithaml V. 1988, Consumer Perceptions of Price, Quality and Value: A Means-End Model and Synthesis of
Evidence, Journal of Marketing, vol. 52, pp. 2-22.
Value =BenefitsSacrifices
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Relationship marketing
perspective to customer value
• Episode value is based on individual transactions and
other interactions
• Relationship value represents the value added resulting
from ongoing and enduring relationship
• Complementary perspectives with different types of
benefits and sacrifices
Grönroos, C. 2000 Service Management and Marketing. John Wiley & Sons, Sussex
Value =Episode Benefits + relationship benefits
Episode Sacrifices + relationship sacrifices
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Basic value, value added and future value
1. Basic value: From the customer’s perspective, the critical
expectations are met. If failed, the customer relationship will
probably fail.
2. Value added: Additional value and differentation appreciated by
customers. Complements basic value. Value added can only be
created if basic value is delivered. Basic value and value added
result in a strong combination.
3. Future value: Enhanced processes, new offerings. New
channels and services. Customer insight concerning customer
needs, lifestyles, values and changing behaviors. Dynamic and
timely change.
Based on: Kautto, M., Lindblom, A. ja Mitronen L.2008. Kaupan Liiketoimintaosaaminen. Talentum.
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Customer value in B2B
Customer value can be seen as monetary evaluation of
• Technical,
• Economic,
• Social, and
• Service related benefits
Anderson and Narus treat price separately from value:
• Value (i.e. technical, economic, social and service
related benefits in monetary terms ) – price
• Value minus price must be greater than the next best
alternative at the market
Anderson, J.C., Kumar, N., & Narus, J.A., 2007,Value Merchants. Demonstrating and documenting Superior value in
business markets. Harvard Business School Press, Boston
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Defining customer value proposition
A customer value
proposition (CVP) should:
• increase the benefits and/or
decrease the sacrifices that
the customer perceives as
relevant;
• build on competencies and
resources that the company
is able to utilize more
effectively than its
competitors;
• be recognizably different
(unique) from competition;
and
• result in competitive
advantageRintamäki, Kuusela & Mitronen (2007) Identifying competitive customer value propositions in retailing. Managing Service Quality,
Vol. 17, No. 6, pp. 621-634
A good CVP
• Is both strategic AND
operational tool for
explaining what kind of
value is created for the
customer and how
• Guides actions internally
• Positions the company
externally
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How value is created?
• Co-creation of value often requires reconfiguring resources or access rights to
resources, and value proposition is a value co-creation mechanism that communicates
a mutually agreeable plan to collaborate and co-create value (Spohrer and Kwan 2009)
• Creation of value can be described as a continuum on which the roles of customer,
company, and products/services vary (e.g., Vargo and Lusch, 2004; Gummesson 2006;
2008; Grönroos and Ravald, 2011; Mele and Polese, 2011)
Company
perspective:
Company
delivers value,
customer has a
passive role
Customer
perspective:
Customer creates
value, companies
facilitate customers
value creating
processes
Balanced
perspective:
Value is co-
created by the
company and
the customer
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Customer value and experience in the hospital
7.2.2018
Berry, L.L., Wall, E.A & Carbone L.P 2006. Service Clues and Customer
Assessment of the Service Experience. Lessons from marketing.
Academy of Management Perspectives
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Value in the retailing
PRODUCTION LOGIC SERVICE LOGIC
MANAGEMENT
STRATEGIC
CHOICES
OPERATIONS
Product- and production
based value creation
Customer-based
value creation
Customer
experience, value
co-creation
Tangible resources
(machines and
materials)
Intangible resources
(Knowledge and
partnerships)
Supply Chain
Management
Mitronen, L. & Rintamaki, Timo (2012): Arvopohjainen toimintalogiikka julkisen sektorin palvelujen ohjausjarjestelmissa. In:
Julkisen ja yksityisen rajalla. Julkisen palvelun muutos.
Anttonen, A., Haveri, A., Lehto, J. & Palukka, H. Tampere University Press
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Customer value B2C (and B2B)
Monetary costsTime Effort
Stress
IrritationDecision cost
Shame
Monetary
benefits
Convenience
Speed
Enjoyment
Status
Safety
Self-esteem
Sense of
belonging
”Focus in
price”
”Focus in
solutions”
”Focus in
customer
experience”
”Focus in
meanings”Economic
value
Functional
value
Emotional
value
Symbolic
value
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Motives revisited – both perspectives are
needed!
Crosby, Lawrence A. & Johnson, Sheree L. (2008) Experience required, Marketing Management
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Often decreasing sacrifice is more effective
than new benefits
SYMBOLIC/SOCIAL SACRIFICE
• Social cost, breaking existing norms,
experiencing shame
EMOTIONAL SACRIFICE
• Psychological cost, irritation and
dissappointment
FUNCTIONAL SACRIFICE
• Costs measures as time and effort. Effort
can be physical or informational (decision
cost)
ECONOMIC SACRIFICE
• Monetary cost, price
Based on: Kuusela, H. & Rintamäki, T. 2002, Arvoa Tuottava Asiointikokemus: Hyödyt ja Uhraukset Henkilökohtaisen ja Sähköisen
Asioinnin Kehittämisessä, University Press, Tampere.
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Rintamäki, Kuusela & Mitronen (2007) Identifying competitive customer value propositions in retailing.
Managing Service Quality, Vol. 17, No. 6, pp. 621-634
Identifying competitive
customer value proposition
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Rintamäki, Kuusela & Mitronen (2007) Identifying competitive customer value propositions in retailing.
Managing Service Quality, Vol. 17, No. 6, pp. 621-634
Examples of positioning based on
customer value propositions
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Walmart: Economic value
Fromartz, S. (2009) The Mini-Cases: 5 Companies. 5 Strategies, 5 Transformations,
MIT Sloan Management Review
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Tesco: Functional value
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Barnes & Nobles: Emotional value
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BodyShop: Symbolic value
OUR VALUES WHAT WE BELIEVE
97% of our loyal Love Your Body™ card members surveyed said that The Body Shop Values are either ‘important’ or ‘very important’ to them as customers.*
Dame Anita Roddick
Human Rights Activist.
Founder of The Body Shop
Dedicate our business to the pursuit of social and environmental change.
Creatively balance the financial and human needs of our stakeholders: employees,
customers, franchisees, suppliers and shareholders.
Courageously ensure that our business is ecologically sustainable, meeting the needs
of the present without compromising the future.
Meaningfully contribute to local, national and international communities in
which we trade by adopting a code of conduct which ensures care, honesty,
fairness and respect.
Passionately campaign for the protection of the environment, to defend human rights,
and against animal testing within the cosmetics industry.
Tirelessly work to narrow the gap between principle and practice, whilst making fun,
passion and care part of our daily lives.
MISSION STATEMENT OF THE BODY SHOPOUR REASON FOR BEING IS TO:
“The business of business should not just be about money, it should be about responsibility. It should be about public good, not private greed.”
Anita believed that businesses have the power to do good. That is why the Mission
Statement of The Body Shop opens with the overriding commitment, ‘To dedicate our
business to the pursuit of social and environmental change.’ Our Mission Statement is
as relevant today as it was over 30 years ago, when the company was founded:
In order to make sure that our business continues to live by this Mission Statement,
The Body Shop created five core Values. These Values act as a practical guide to
decision making at all levels of the company, helping us to ensure that our profiits
are made with principles.
* Survey sent to over 100,000 customers in the UK, the USA, Singapore and Canada. For more details go to section ‘Making the most impact’
10
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7.2.2018
Framework for Industrial Services- Focus of customer relationship and competencies
changes
Parts &Machinary
Operations Process Business
Customer’sPurchasing
Customer’s Operations
Customer’s Process
Customer’s Business
Supplier Competencies
Solution/ Value Partner
Machine Supplier
System Provider
Maintenance Partner
Performance Partner
Source: BestServ Program
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From value added to value proposition
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7.2.2018
Manufacturer of welding equipment has
launched service business solutions activities
Kemppi Oy
DM 32154
11-2007 Copyright © Tekes
• Besides welding equipment, the Kemppi ARC System
provides customers with data collection and transfer
software and equipment
• Additional expert services are also offered
• Weak links and bottlenecks in the customers‘ processes
can be identified with the data provided
by the collection system
• Service business provides
expanding fields for business
activities and new ways of
differentiating oneself
• www.kemppi.com
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Wärtsilä Services
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Wärtsilä Services
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Wärtsilä Services
Wärtsilä Services
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Fondia – Legal Department as a Service
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Fondia – Legal Department as a Service
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Multi-channel and cross-channel service
Co
mp
an
yV
irtu
al
Ph
ysic
al
Physical Virtual
Cross-channelbusiness
CustomerMitronen & Rintamäki, 2012
• Multi-channel refers to
business model where e.g.
Brick-and-mortar store and
webshop are managed as
independent entities
• Cross-channel refers to
business models where
multiple channels are
integrated for enhancing
customer value. In these
cases, movements of
products, money and
information are allowed
between channels, e.g. order
online and pick up from brick
and mortar store.
E.g. Chatterjee, P. (2010), “Multiple-Channel and
Cross-Channel Shopping Behavior: Role of Consumer
Shopping Orientations,” Marketing Intelligence &
Planning, 28(1), pp. 9–24.
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Framework for multi-channel strategies
Müller-Lankenau et al. 2004
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Retailing multi-channel examples
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Uniqlooks (Uniqlo)
• A“fan page by the fans for the fans”,
UNIQLOOKS (http://uniqlooks.uniqlo.com
/), is a social platform for connecting its
customers around the world
• Customers who have purchased Uniqlo
clothing wear it in photos that they can
upload to the Web site or send via a
smartphone application to their friends or
for public display
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Navigation and servicing with
information
Simon Malls App
– http://itunes.apple.com/us/app/
simon-malls-free-
shopping/id395128180?mt=8
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Service Business LMi
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“Shouldice Hospital runs like a very well-oiled machine. All of your medical staff are so polite, knowledgeable and respectful
towards the patients and one another. My stay here was so very comfortable and I have every confidence that I was given the
best possible care. Thank you so very much for taking such an interest in my recovery.” Ruth – Etobicoke
Service Business LMi
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New York Hudson River Park
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City of Boston
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City of Boston - Citizens Connect
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City of Calgary
7.2.2018
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Big, Medium and Small data as a resource
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Understanding Wisdom
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New Service Business -
platforms• New service businesses such as
Amazon, iTunes, and Rakuten have a
common characteristic:
–they play a role of platform that
orchestrates and facilitates value
co-creation by customers and
providers.
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Platform types
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Service
Experience
Service
ProviderCustomer
A Service System and Its Entities
1Kwan, S. K. & Min, J. H. (2008) “An Evolutionary Framework of Service Systems”.
Presented at the International Conference on Service Science, Beijing, China, April 17-18. 2017
Service System Worldview1
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Typical platforms
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New platforms – Global marketplaces
in the world
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Service Business LMi
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Monipuolinen ansaintalogiikka
– case Alibaba Ecoystem
Source: https://www.alibaba.com
Service Business LMi
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New integrated services for the customers
Service Business LMi
Lähde: http://www.time2know.net/multichannel-multipuprose-commerce
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Learning platform - Claned
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How to ”shop” a car - Autogravity
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Personal trainer - Polar
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Service Business LMi
Levi’s Tailor Shop
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7.2.2018
New business models and platforms
“Last Mile” logistics Mobil payment Customer services
Volym business Shareholder collaboration Private service
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Customer value management in the
service business
Anderson, J.C., Kumar, N., & Narus, J.A., 2007,Value Merchants. Demonstrating and documenting Superior value in
business markets. Harvard Business School Press, Boston
Conceptualize
value
Formulate value
propositions
Substantiate
value
propositions
Profit from value
provided
Tailor market
offerings
Transform sales
force to value
merchants
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Summary
• To support and develop value
creating processes consider the
following:
– Defining value from the customer
perspective, e.g. economic,
functional, emotional and symbolic
value
– Document and demostrate customer
value proposition
– Expand and redefine customer
experience
– Redefine roles and resources
– Identify the possibilites of cross-
channel solutions
– Have an open mind and remember to
look across industries for benchmark!IZOD Indy Racing at Macy’s, New York
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Thanks!
Lasse Mitronen
+358 50 65707
7.2.2018Service Business LMi