Service Strategy Service Strategy

Learning ObjectivesLearning Objectives

Identify strategic opportunities available in the design of the service concept.

Understand the competitive environment of services.

Explore the dimensions of service competition. Identify methods of winning customers in the

marketplace Discuss the limits in the use of information Discuss the competitive role of information in

services.

The Strategic Service ConceptThe Strategic Service Concept

Structural:Structural:Delivery systemDelivery system (front & back office)Facility designFacility design (aesthetics, layout)LocationLocation (competition, site characteristics)Capacity planningCapacity planning (number of (number of servers))

ManagerialManagerialService encounterService encounter (culture, empowerment)QualityQuality (measurement, guarantee)Managing capacity and demandManaging capacity and demand (queues)Information Information (data collection, resource)

Competitive Environment of ServicesCompetitive 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 Barriers Exit Barriers

Competitive Service Strategies (Overall Cost Leadership)Competitive Service Strategies (Overall Cost Leadership)

Seeking Out Low-cost CustomersSeeking Out Low-cost Customers Standardizing a Custom Service Standardizing a Custom Service Reducing the Personal Element in Service Reducing the Personal Element in Service

DeliveryDelivery Reducing Network CostsReducing Network Costs Taking Service Operations Off-lineTaking Service Operations Off-line

Competitive Service Strategies (Differentiation)Competitive Service Strategies (Differentiation)

Making the Intangible TangibleMaking the Intangible Tangible 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.

Competitive Service Strategies (Focus)Competitive Service Strategies (Focus)

Buyer Group: (e.g. USAA insurance and Buyer Group: (e.g. USAA insurance and military officers)military officers)

Service Offered: (e.g. Shouldice Hospital Service Offered: (e.g. Shouldice Hospital and hernia patients)and hernia patients)

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

Customer Criteria for Selecting a Service ProviderCustomer 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 (Doing things to people) Speed (Avoid excessive waiting)

Service Purchase DecisionService Purchase Decision

Service QualifierService Qualifier: To be taken seriously a : To be taken seriously a certain level must be attained on the certain level must be attained on the competitive dimension, as defined by other competitive dimension, as defined by other market players. market players. ExamplesExamples are cleanliness for a are cleanliness for a fast food restaurant or safe aircraft for an fast food restaurant or safe aircraft for an airline.airline.

Service WinnerService Winner: The competitive dimension : The competitive dimension used to make the final choice among used to make the final choice among competitors. competitors. ExampleExample is price. is price.

Service Purchase Decision (cont.)Service Purchase Decision (cont.)

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

Competitive Role of Information in ServicesCompetitive Role of Information in Services

Strategic Focus Competitive Use of Information Strategic 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)

Limits in the Use of InformationLimits 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)

Discussion TopicsDiscussion Topics

What are the characteristics of service that will be affected What are the characteristics of service that will be affected by the emerging electronic and communications by the emerging electronic and communications technology?technology?

When does information collected through service When does information collected through service membership become an invasion of privacy?membership become an invasion of privacy?

Discuss the concept of service ‘winners’ and service Discuss the concept of service ‘winners’ and service ‘losers’ for a service you are familiar with.‘losers’ for a service you are familiar with.

What are the implications of the growing use of personal What are the implications of the growing use of personal computers for the customization of services and computers for the customization of services and elimination of human interactions?elimination of human interactions?

America West Airlines Generic Competitive StrategyAmerica West Airlines Generic Competitive Strategy

TargetTarget Strategic AdvantageStrategic Advantage

Low cost UniquenessLow cost Uniqueness

Entire Overall cost DifferentiationEntire Overall cost Differentiation

Market leadershipMarket leadership

Market FocusMarket Focus

Segment Segment

America West Airlines Competitive FeaturesAmerica West Airlines Competitive Features

Service Qualifiers:Service Qualifiers:

Service Winners:Service Winners:

Service Losers:Service Losers:

America West Airlines Strategic Service ConceptAmerica West Airlines Strategic Service Concept

Delivery System:Delivery System:

Location:Location:

Facility Design:Facility Design:

Capacity PlanningCapacity Planning

America West Airlines Strategic Service Concept (cont.)America West Airlines Strategic Service Concept (cont.)

Service Encounter:Service Encounter:

Quality:Quality:

Managing Capacity and Demand:Managing Capacity and Demand:

Information:Information:

America West Airlines PositioningAmerica West Airlines Positioning

CABIN SERVICECABIN SERVICE

Full ServiceFull Service

PREFLIGHT SERVICEPREFLIGHT SERVICE Inconvenient ConvenientInconvenient Convenient

No AmenitiesNo Amenities