01 st AUGUST 2014 SERVICE STRATRGY

The strategic service vision Service strategy must begin with a vision A service strategy vision is formulated by addressing questions about the target market, service concept, operating strategy and delivery system.

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

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

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

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

 Relatively Low Overall Entry Barriers  not patentable  Typically not capital intensive  Exception – when you are first in a small market, or prized location advantage  Economies of Scale Limited  limited opportunities for economies of scale because of simultaneous production and consumption  Erratic Sales Fluctuations-  demand varies by time of day and day of the week with random arrivals Competitive Environment of Services

 No Power Dealing with Buyers or Suppliers  Typically service firms are small, so they have less power  Product Substitutions for Service  For example blood pressure or diabetes checking can be done at home due to innovations. So service firms need to watch for competition from other service firms and product innovations.  High Customer Loyalty  This can act as a barrier to entry  Exit Barriers  Typically low

Competitive Service Strategies  Porter argues that three generic competitive strategies exist: 1. Overall cost leadership 2. Differentiation 3. Focus

 Requires efficient scale facilities, tight cost and overhead control, and use of innovative technology  Implementation of this strategy typically requires high capital investment in state of the art equipment, and aggressive pricing (even when it may lead to start up losses).  Examples, Wal-Mart, McDonald’s 1. Overall Cost Leadership

How to attain cost leadership?  Seeking Out Low-cost Customers  Some customers cost less to serve than others  Standardizing a Custom Service  routine preparation though tax forms can be customized  Reducing the Personal Element in Service Delivery (promote self-service)  Technology use has allowed banks to provide access to ATMs and reduce human interface  Reducing Network Costs  Taking Service Operations Off-line when customer is not required to be present –

Differentiation in service means being unique in brand image, technology use, features, or reputation for customer service. HOW?  Making the Intangible Tangible (memorable)  For example giving toiletries in hotels to remind of the comfortable stay  Customizing the Standard Product  For example addressing a customer by the name can give an impression of customization of otherwise a standardized service  Reducing Perceived Risk  By providing guarantee, example pest control  Giving Attention to Personnel Training  Service providers will ultimately make the difference  Delivering consistent level of high Quality at multiple sites 2. Differentiation

 This strategy is built around providing a target market with very specific need.  Works on the assumption that the firm can serve its narrow market more effectively and efficiently. 3. Focus

Winning customers in the MarketPlace 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)

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

Service Purchase Decision (cont.) 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 Competitive use of Information Online (Real time) Offline (Analysis) External (Customer) Creation of barriers to entry: Reservation system Frequent user club Switching costs Database asset: Selling information Development of services Micromarketing Internal (Operations) Revenue generation: Yield management Point of sales Expert systems Productivity enhancement: Inventory Status Data envelopment analysis (DEA)