Service Strategy

Learning Objectives ä ä Identify strategic opportunities available in the design of the service concept. ä ä Understand the competitive environment of services. ä ä Explore the dimensions of service competition. ä ä Identify methods of winning customers in the marketplace ä ä Discuss the limits in the use of information ä ä Discuss the competitive role of information in services.

The Strategic Service Concept ä Structural: Delivery system Facility design Location Capacity planning (number of ) ä Structural: Delivery system (front & back office) Facility design (aesthetics, layout) Location (competition, site characteristics) Capacity planning (number of servers) ä Managerial Service encounter Quality Managing capacity and demand Information ä Managerial Service encounter (culture, empowerment) Quality (measurement, guarantee) Managing capacity and demand (queues) Information (data collection, resource)

Competitive Environment of Services ä Relatively Low Overall Entry Barriers ä Economies of Scale Limited ä High Transportation Costs ä Erratic Sales Fluctuations ä No Power Dealing with Buyers or Suppliers ä Product Substitutions for Service ä High Customer Loyalty ä Exit Barriers

Competitive Service Strategies (Overall Cost Leadership) ä Seeking Out Low-cost Customers ä Standardizing a Custom Service ä Reducing the Personal Element in Service Delivery ä Reducing Network Costs ä Taking Service Operations Off-line

Competitive Service Strategies (Differentiation) ä Making the Intangible Tangible ä Customizing the Standard Product ä Reducing Perceived Risk ä Giving Attention to Personnel Training ä Controlling Quality ä Controlling Quality Note: Differentiation in service means being unique in brand image, technology use, features, or reputation for customer service.

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

Customer Criteria for Selecting a Service Provider ä ä Availability(24 hour ATM) ä ä Convenience(Site location) ä ä Dependability(On-time performance) ä ä Personalization(Know customer’s name) ä ä Price(Quality surrogate) ä ä Quality(Perceptions important) ä ä Reputation(Word-of-mouth) ä ä Safety(Doing things to people) ä ä Speed(Avoid excessive waiting)

Service Purchase Decision ä 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. ä Service Winner: The competitive dimension used to make the final choice among competitors. Example is price.

Service Purchase Decision (cont.) ä 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).

Competitive Role of Information in Services Strategic Focus Competitive Use of Information On-line Off-line On-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 information External Reservation system Selling information (Customer) Frequent user club Development of services (Customer) Frequent user club Development of services Switching costs Micro-marketing Switching costs Micro-marketing Revenue generation: Productivity enhancement: Revenue generation: Productivity enhancement: Internal Yield management Inventory status Internal 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 Information ä Anti-competitive (Barrier to entry) ä Fairness (Yield management) ä Invasion of Privacy (Micro-marketing) ä Data Security (Medical records) ä Reliability (Credit report)

Discussion Topics ä What are the characteristics of service that will be affected by the emerging electronic and communications technology? ä When does information collected through service membership become an invasion of privacy? ä Discuss the concept of service ‘winners’ and service ‘losers’ for a service you are familiar with. ä What are the implications of the growing use of personal computers for the customization of services and elimination of human interactions?

America West Airlines Generic Competitive Strategy Target Strategic Advantage Target Strategic Advantage Low cost Uniqueness Low cost Uniqueness Entire Overall cost Differentiation Entire Overall cost Differentiation Market leadership Market leadership Market Focus Market Focus Segment Segment

America West Airlines Competitive Features ä Service Qualifiers: ä Service Winners: ä Service Losers:

America West Airlines Strategic Service Concept ä Delivery System: ä Location: ä Facility Design: ä Capacity Planning

America West Airlines Strategic Service Concept (cont.) ä Service Encounter: ä Quality: ä Managing Capacity and Demand: ä Information:

America West Airlines Positioning CABIN SERVICE CABIN SERVICE Full Service Full Service PREFLIGHT SERVICE Inconvenient Convenient Inconvenient Convenient No Amenities No Amenities